Chips off the table...

[Gone4Good]

CPI is not rigged.

TIPS are safe.

 

[Disappointed]

I tell you my world view is very different from the original poster's view. Maybe he shouldn't use me as a model - LOL!

But I own equities to hedge against long-term inflation and I make sure I have a healthy foreign exposure in both my stock and bond allocations to hedge against US dollar decline.

Audrey

Audrey: I used to read your posts on morningstar.com, I would love to have you manage my money. While you stated that your strategy fits your risk tolerance (and may not be suitable for others), I think it is a very prudent and well executed plan. YOu are too modest.

mP

 

[Koolau]

DW and I were also very worried about investing in the market, and had a lot of cash just sitting in CD's earning a whopping 3%. We were very nervous that inflation was going to eat our nest egg. A once in a lifetime opportunity (for us anyway) came by when a beach house came on the market for an absolute screaming deal price. We decided to get rid of the cash and buy our future retirement home in a place we called heaven. My parents will be moving into the beach house and be live in caretakers, so when we retire we will sell our current house (25 years from now) and move in. I know realestate is risky today, but 25 years from now, I have full confidence our money will be hedged against inflation.

Our beach house venture should be paid in full within 4 years. Current house is paid in full. We are still in the market with our fully funded 401k's, but that is all I am willing to risk.

This is pretty much what we did 25 years ago and it DID work out very well for us. We didn't have parents to live in the place for us, but we did have a good rental agent who looked out for us (for a price, of course).

Clearly, real estate can be a good way to invest some of your funds - especially if it's in a place you eventually want to live. Best of luck!!

 

[DAYDREAMER]

This is pretty much what we did 25 years ago and it DID work out very well for us. We didn't have parents to live in the place for us, but we did have a good rental agent who looked out for us (for a price, of course).

Clearly, real estate can be a good way to invest some of your funds - especially if it's in a place you eventually want to live. Best of luck!!

A perc of the beach house is that our other house is 4 miles away. It is so close that we dont have to wait 25 years to enjoy the place. My parents will be visited by us alot. As they get older, we will be close by to take care of them, and what an awsome place to live out the rest of their/our life!!!! I set the bouy/anchor for my boat 3 weekends ago, and have been crabbing ever since.

 

[Lsbcal]

...(snip)...
Is anyone else in the same situation? I used to be so confident with my investing skills, but with the new administration I feel like all bets are off. ...

From this statement it sounds like you feel that the misalignment of your politics and their politics is bad for your portfolio. You might want to look at times when your politics were reflected in the past administration. Was your politics correlated with past good equity and/or bond returns? If there was a good correlation then just invest in equities and/or bonds when your political opinions are reflected in the current government and be out of the markets (and in CD's or something low risk) otherwise.

I've tried to make this as politically neutral a statement as I can. Personally I don't think one should confuse good investing with politics.

 

[IndependentlyPoor]

I'm gonna try to be as apolitical as possible here because I think there are interesting issues here that rarely get attention because these discussions get derailed into political rants so easily. I will probably regret posting this, but I trust you folks enough to risk a bit of revelatory candor.

Almost everybody has trouble mixing up politics with investing. I have always been amused that even the most famous economists seem incapable of separating "what ought to be" from "what is". See, for example, this eye-opening exchange between economists.

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html
and
http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.doc
from
Bogleheads :: View topic - Thought everyone would find this of interest

When was the last time one school of scholarly thought waged such an ugly war of words? Maybe when quantum mechanics was first introduced (Einstein's "God doesn't play dice" comment), but I doubt they got this personal.

I have also struggled with keeping politics separate from finances. When a certain governor (whose policies and track record I was all too familiar with) was elected president I seriously considered slashing my equity allocation. When he was re-elected I actually wrote out a huge check to the Prudent Bear Fund before tearing it up.

Turns out, politics aside, that might not have been have a bad move. But since I am firmly in the don't-try-to-predict-the-market camp, I would still stay the course if I had it all to do over again.

Politics obviously has a huge impact on economies and markets. Through the bully pulpit, executive power, the budget, and legislative arm twisting, presidents exert an enormous influence on the [-]country[/-] world. How a president responds to a crisis is immensely important. Who could dispute that FDR's New Deal did not have radically different results than a continuation of Hoover's policies would have? Even more important is whether a president leads us to war or not: FDR again, Truman, Kennedy, Bush I, Bush II. What about direct economic manipulation (Nixon's wage and price controls and abandoning the gold standard)? And we mustn't forget the impact of Johnson's Great Society.

We sort of knew what we would be getting when we elected these guys; their actions had enormous impact and were maybe even somewhat predictable. Should we really ignore politics in our financial decisions? Maybe not, but it seems like nobody is capable of talking about it civilly (or even rationally). Not even the most eminent economists.

This had probably pigeon-holed me as an incorrigible liberal in the minds of many of you, but it isn't that simple: I voted for Reagan (twice!), and I actually consider myself as politically a little right-of-center.

Apologies for the long posting. I'm going to put on my asbestos underwear now.

P.S. We need a "peace" emoticon like they have over at Bogleheads.

 

[DblDoc]

I remember seeing somewhere an evaluation of market performance and gov't - don't remember where. For what it is worth markets did poorly when dominated by one or the other party, best when neither party had a clear advantage...

DD

 

[kencc]

If taking chips off the table then I suggest you need to think about objectives. In the extreme case of hyperinflation, you need real assets and it appears you already have a large amount of real estate. Considering the more probable range of bad scenarios of deflation and/or 70's style very high inflation and the over-riding objective is solely to conserve capital then cash and cash equivalents are probably the best option. Stocks only like inflation between about 1% and 5%. Generally, in the 70's and early 80's, rolling 10 year real returns (interest and dividends reinvested) for cash at, say, roughly in the range of -1% to +1% annual, were better than or similar to stocks. Over the last 30 years, cash has produced about an annual real return of 1.5% if interest was reinvested i.e. cash has conserved capital in the long term at minimum risk and has probably done better than other liquid assets in short term high inflation periods. However if your objectives include producing a real income greater than 1% as well as trying to conserve capital then you have to take more risk of losing some of the capital. Personally, in your situation I have no problem taking the chips off the table and conserving capital for a few years until, perhaps, the economic/financial/political situation and fundamentals stabilize/improve. However markets are irrational and you run the risk of missing profits from having assets invested in stocks etc and you may be out of such markets for a period of years but it appears you already have sufficient assets that you can easily afford to miss out on that without having any future regrets.

 

[wildcat]

I tell you my world view is very different from the original poster's view. Maybe he shouldn't use me as a model - LOL!

But I own equities to hedge against long-term inflation and I make sure I have a healthy foreign exposure in both my stock and bond allocations to hedge against US dollar decline.

Audrey

Audrey -

What has been your foreign bond investment vehicle?

 

[audreyh1]

Audrey -

What has been your foreign bond investment vehicle?

Fidelity Strategic Income FSICX holds foreign govt, foreign corporate, and emerging market debt in its portfolio. It's a wild ride though!!!

 

[novaman]

I too am not optimistic about the next several years (nothing to do with politics). I always said if I could get my portfolio back close to where it was at the end of 2007, I would reallocate my assets. Well I got there recently so on Monday morning I cashed out of apple and google with plans of increasing the bond side of my portfolio.

Wouldn't you know it? Apple and Google went on a tear this week and as of closing today, I left about 50K on the table.

 

[Bikerdude]

I too am not optimistic about the next several years (nothing to do with politics). I always said if I could get my portfolio back close to where it was at the end of 2007, I would reallocate my assets. Well I got there recently so on Monday morning I cashed out of apple and google with plans of increasing the bond side of my portfolio.

Wouldn't you know it? Apple and Google went on a tear this week and as of closing today, I left about 50K on the table.

I am doing the same. Being retired, the last few years have been a wake up call for me. I (erroneously) thought I had a conservative, well balanced portfolio, based upon MPT. As everyone knows that was not an adequate defense. Therefore, I have been selling into strength to keep my equity exposure at 38% following Bogle with my age (62%) in fixed income. I will continue to re-balance on every significant move forward. Monthly if necessary.

 

[Gone4Good]

I have a healthy foreign exposure in both my stock and bond allocations to hedge against US dollar decline.

One thing I noticed in both the Loomis Global Bond fund (which I own) and T. Rowe Price's international bond fund is that they haven't generated excess returns due to the declining dollar over the last 10 years. While their volatility tracks with that of the dollar, their long-run returns are very similar to a plain old bond index. Neither one hedges currency exposure.

I've looked at this several times and always end up wondering if all you get with a foreign bond fund is added volatility.

 

[audreyh1]

One thing I noticed in both the Loomis Global Bond fund (which I own) and T. Rowe Price's international bond fund is that they haven't generated excess returns due to the declining dollar over the last 10 years. While their volatility tracks with that of the dollar, their long-run returns are very similar to a plain old bond index. Neither one hedges currency exposure.

I've looked at this several times and always end up wondering if all you get with a foreign bond fund is added volatility.

So you are saying that the US dollar has significantly declined over that time period - 1999 to present - but that those bond funds did not outperform US bond index funds? That is disappointing! I'll have to take a closer look.

There is still some rebalancing benefit to international bonds versus US bonds if they move somewhat independently of each other.

I believe I have noticed excess returns from FSICX over the past 5 years or so, but it is very volatile. I suspect the excess may be more due to emerging market debt than anything. I'll have to compare.

Audrey

 

[ejman]

Unfortunately, the investing game all too often seems to me to resemble wars in that just as the generals get all their ducks in a row to fight the last war right this time, so do investors get their ducks lined up to redo the last financial "event" right this time. Life unfortunately does not proceed in such an orderly fashion. Those that become overweighted in bonds/cash at this time may have ample opportunity to reconsider their actions in the future.

For myself, the band of 55-65% equities in a well diversified portfolio served me well during the debacle and I intend to maintain such. Although of course, forceful application of a 2X4 to forehead may change that...

 

[audreyh1]

I'm right there with you ejman!

Audrey

 

[Gone4Good]

So you are saying that the US dollar has significantly declined over that time period - 1999 to present - but that those bond funds did not outperform US bond index funds? That is disappointing! I'll have to take a closer look.

Here is the 5-yr returns of the funds I mentioned. The green line is Vanguard's Bond Index, the other 2 are international bond funds.

 

[audreyh1]

Hmmm - what does the graph say about no dividends or coupons?

Looking at the equivalent in M* it seems like the 5-year return is dominated by the recent "flight to safety" of the US dollar which did indeed undo much of the gain the foreign bonds had made up until then.

Looking at the M* 10 year chart it looks to me as if the Loomis Sayles Global Bond definitely pulled ahead starting in 2003 and has recovered most of its lead in spite of the recent financial crisis that punished foreign currencies. T Rowe Price International, however, doesn't really show any benefit above VBMFX over the 10 year period - it also seems to track pretty closely since 2004.

The US dollar was strong during bear markets 2001 (plus 9-11) and again during the 2008 financial crisis, so you would expect VBMFX to outperform during that time period. Maybe there will be a flight to US safety every 10 years that causes VBMFX to catch up - who knows?

LSGLX - heavy blue line
VBMFX - orange
RPIBX - green
FSICX - yellow

Audrey

 

[haha]

How soon we forget how we felt in March

Here's one "expert" who thinks stocks have no place in a retirement portfolio.

Economist Zvi Bodie debunks standard investment advice - Sep. 16, 2009

Ha

 

[easysurfer]

Very interesting article. I can't agree with the "expert" though. Seems almost the opposite of putting everything in the market. Guess the article shows that asset allocation is a very subjective decision even for "experts."

 

[ejman]

100% TIPS? Lets see, these financials instruments were created by the government. As such, there is obviously 0% probability of the rules being changed and or future "adjustments" to CPI calculation basis. Talk about all eggs in one basket...

 

[Delawaredave5]

We have no confidence that the market will not take a nose dive going forward.

I had these same feelings about US market in late 80's when "Japan was taking over the US". Looking back, you know what happened and it would have been unfortunate to "pull out" back then.

Back then, instead of "pulling out", I diversified heavily internationally - figuring that would give me valuable country and currency diversification. I think it worked (measured by "I slept fine....").

I have those same "America is toast" feelings now. My response is to increase my percentages of international/global stocks and bonds. My stock allocation is over 1/2 global. My "non stock" (bonds and REITs) is about 20% global - and I want to increase this to 30%.

Good luck !

 

[W2R]

100% TIPS? Lets see, these financials instruments were created by the government. As such, there is obviously 0% probability of the rules being changed and or future "adjustments" to CPI calculation basis. Talk about all eggs in one basket...

That was my reaction, as well. Even if we think massive inflation is certain and even if we like TIPS, putting 100% in TIPS seems more than a little rash.

Even before reading about investment I think most people instinctively realize the value of diversification. Putting all one's eggs in one basket can be foolhardy, especially in this case where (deserved or not) the government has a reputation of "fiddling" with the CPI in the past.

 

[Gone4Good]

Hmmm - what does the graph say about no dividends or coupons?

It means if there is an "*" by the security it doesn't have dividend information for that security . . . doesn't apply in this case.

I don't know how the dollar has fared over 10-yrs, but I know that it has depreciated against the Euro by about 20% in the last 5-yrs. One would think that the FX bond funds would have had a considerable advantage over that time period. But I don't see it in their performance.

Meanwhile, FSICX has outperformed over both 10 and 5 year periods. But it's not really a FX fund. "The fund uses a neutral mix of approximately 40% high yield, 30% U.S. Government and investment-grade, 15% emerging markets, and 15% foreign developed markets."

 

[Gone4Good]

Here's one "expert" who thinks stocks have no place in a retirement portfolio.

Ha

He also seems to think that people shouldn't retire until they are 70 or 80.