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Old 08-09-2011, 08:33 PM   #21
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This is really getting me worried. All our investments are tied up in CD's except for a mortgage we are holding on our former home. That's bringing in 5.5% for the next ten years. The CD's will be maturing in 2014 and what's now at 4.65% will probable be non-existant then. What's a body to do? Not going back into the market. Been there-done that. Bonds? Know absolutely nothing about them but maybe I better get started. I've got 2012 and 2013 to learn something about them. W2R keeps talking about Vanguard. I'll have to start studying.
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Old 08-09-2011, 08:37 PM   #22
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The interesting thing is that even though bond fund yields are low, the total returns have thus far been phenomenal:

Vanguard Inter-Term Bond Index VBILX - Yield = 2.74%, YTD RTN = 8.73%.

Difficult to see how this can be sustained.
I don't think it can. I'm also curious about the "bonds funds look good" comment. I was thinking the exact opposite. Bond yields have nowhere left to go but up, which will lead to losses in return. Even if the gov't holds interest rates down and bonds continue to yield practically nothing, the funds will just stay pretty much where they are. So if you buy in now, there's little or no return upside, and a significant possibility of negative returns.

I need to buy bonds to get my AA in order. All my fixed income is in cash. I know it makes me a DMT, but I can't bring myself to buy bonds in this environment. If there was more potential upside, I'd go for it. But buying something that is pretty much guaranteed to go down permanently doesn't appeal.
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Old 08-09-2011, 09:20 PM   #23
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Fed Announcement 0% till mid 2013
Sounds like an ad for a car dealership or furniture store...
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Old 08-09-2011, 09:47 PM   #24
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Low yield has no effect on retired people. They no longer need to purchase additional bond. If yield drops then bond price appreciates and retiree can use capital gain to offset the yield drop.

However bond is a bad choice right now for people who are still in accumulation stage. I have only 1% bond in my portfolio.
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Old 08-09-2011, 10:01 PM   #25
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Sigh... I miss Paul Volcker.
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Old 08-09-2011, 10:07 PM   #26
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Low yield has no effect on retired people. They no longer need to purchase additional bond. If yield drops then bond price appreciates and retiree can use capital gain to offset the yield drop.

However bond is a bad choice right now for people who are still in accumulation stage. I have only 1% bond in my portfolio.
I'm retired, and I disagree with this statement. If you are doing AA with rebalancing, you will be forced to sell equities in order to buy bonds when the AA percentage changes. So if I were to buy a bond fund now up to, say, 50% of my net worth, and the value dropped when the yield goes up (which will happen eventually), I would then need to buy more bond fund to get my percentage back in order. And how much do you think yields can drop from where they are now? I don't see much room for the price to appreciate.
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Old 08-09-2011, 10:15 PM   #27
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This is really getting me worried. All our investments are tied up in CD's except for a mortgage we are holding on our former home. That's bringing in 5.5% for the next ten years. The CD's will be maturing in 2014 and what's now at 4.65% will probable be non-existant then. What's a body to do? Not going back into the market. Been there-done that. Bonds? Know absolutely nothing about them but maybe I better get started. I've got 2012 and 2013 to learn something about them. W2R keeps talking about Vanguard. I'll have to start studying.
I like the investment books on the Bogleheads book list. Maybe you'll find some that you like and haven't read on that list.

You're right - - I do like mutual funds from Vanguard. Some people here have good things to say about Fidelity and about Schwab, too.
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Old 08-09-2011, 10:37 PM   #28
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I am not worried about inflation. I am worried about deflation. Keynes showed that depressions happen when people stop spending money and low demand makes prices drop. They continue to not spend because things will be cheaper tomorrow or they are afraid (Japan) or they don't have any money (coming soon to a Homeland near you!). Then low demand kills jobs because no one is buying anything.
As a saver and a retiree, and manager of my mom's money. I am depressed about the war on saving. However, I agree with you Ed. I can muddle my way through a bout of high inflation. However, what is a pretty much a game over scenario is long period of deflation.

I figure deflation leads depression and depression is not only depressing but down right scary. I think that is the real risk we face.
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Old 08-10-2011, 08:39 AM   #29
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And how much do you think yields can drop from where they are now? I don't see much room for the price to appreciate.
How long have we been saying that?
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Old 08-10-2011, 08:44 AM   #30
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Sigh... I miss Paul Volcker.
I'm having trouble conceiving how jacking rates up to 20% would help anything?
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Old 08-10-2011, 08:47 AM   #31
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...In the middle of all this, the government cuts spending because of pressure. Exactly the wrong thing to do....
The only good thing to come out of this may be reducing the number of government employees.
To me, these two statements contradict each other.
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Old 08-10-2011, 08:47 AM   #32
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On the plus side, deflation can always be countered when the government can print its own money.

If we had ugly sustained deflation, in theory the Fed could just hand everyone 10k (or 20k, or 100k), and we would no longer have a problem with deflation.

During the Great Depression, we were on the gold standard, so dramatic deflation was a possibility.

Nowadays, we have the tools to re-inflate if need be.

The trick is avoiding going too far with it and getting us into ugly inflation.


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As a saver and a retiree, and manager of my mom's money. I am depressed about the war on saving. However, I agree with you Ed. I can muddle my way through a bout of high inflation. However, what is a pretty much a game over scenario is long period of deflation.

I figure deflation leads depression and depression is not only depressing but down right scary. I think that is the real risk we face.
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Old 08-10-2011, 08:50 AM   #33
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On the plus side, deflation can always be countered when the government can print its own money.

If we had ugly sustained deflation, in theory the Fed could just hand everyone 10k (or 20k, or 100k), and we would no longer have a problem with deflation.

During the Great Depression, we were on the gold standard, so dramatic deflation was a possibility.

Nowadays, we have the tools to re-inflate if need be.

The trick is avoiding going too far with it and getting us into ugly inflation.
I believe the term for this is "rock and a hard place"...
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Old 08-10-2011, 08:50 AM   #34
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Sigh... I miss Paul Volcker.
Me too. He acted in the best interest of the US economy and was not concerned with opinions or desires of politicians or bankers.
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Old 08-10-2011, 08:54 AM   #35
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Sweet for anyone issuing some form of debt.... securities or getting a mortgage.

Still... he probably just made their intentions clear... because of housing, they were probably going to do it anyway.


I suppose it is better to know than not.
I thought that debt issuers just add their % on top of the fed rate, so it doesn't really matter what the fed rate is, as the banks always get their cut. (I guess more people qualify, and less people would default, so that could be good for the issuers)
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Old 08-10-2011, 09:25 AM   #36
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With this mess staring us in the face, how can Congress be in recess. They should be forced to stay in Washington and work 7x24 until they can come up with a real plan to get our house in order.
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Old 08-10-2011, 09:36 AM   #37
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This is really getting me worried. All our investments are tied up in CD's except for a mortgage we are holding on our former home. That's bringing in 5.5% for the next ten years. The CD's will be maturing in 2014 and what's now at 4.65% will probable be non-existant then. What's a body to do? Not going back into the market. Been there-done that. Bonds? Know absolutely nothing about them but maybe I better get started. I've got 2012 and 2013 to learn something about them. W2R keeps talking about Vanguard. I'll have to start studying.
Tough situation for conservative investors. I have a high percentage in CD's but do keep 17-20% in blue chip dividend stocks. And I do own a sprinkle of closed end funds with good yields. So the mix has given me decent income up to this point with an overall conservative AA. But like you, CD's are maturing so what's a scaredy cat to do?

The obvious answer........
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Old 08-10-2011, 09:42 AM   #38
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I keep wondering if these low interest rates are not responsible extending the recovery. I know many people who depend on interest income to supplement their SS or salary. A few years ago they were earining $10,000 a year or more in interest. Now, they are lucky to be earning $1000 a year. This has got to affect their ability to spend.
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Old 08-10-2011, 10:08 AM   #39
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What I am wondering...................if there is a huge cry to "up" corporate taxes AND increase the tax on fuel (transportation of goods) --- how secure will the current "solid dividends" remain? Seems to be like a row of dominoes falling.
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Old 08-10-2011, 10:29 AM   #40
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I don't think it can. I'm also curious about the "bonds funds look good" comment. I was thinking the exact opposite. Bond yields have nowhere left to go but up, which will lead to losses in return. Even if the gov't holds interest rates down and bonds continue to yield practically nothing, the funds will just stay pretty much where they are. So if you buy in now, there's little or no return upside, and a significant possibility of negative returns.

I need to buy bonds to get my AA in order. All my fixed income is in cash. I know it makes me a DMT, but I can't bring myself to buy bonds in this environment. If there was more potential upside, I'd go for it. But buying something that is pretty much guaranteed to go down permanently doesn't appeal.
Yes, but maybe something that goes down just a little will be looking pretty good if equities go down a lot.
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