Fed Announcement 0% till mid 2013

[chinaco]

I suppose the 0% is a little off... but not by much for the really short-term fixed!

What now.... This changes the picture a little. Seems to make their plans a little more transparent. However, if inflation kicks up... they might change their posture!

What's a small investor to do..... go for the max coupon for a year or so or keep the duration short?

Thoughts and ideas on bonds and other fixed investments.

Interest rates: The Fed indicated it plans to keep "exceptionally low" interest rates in place until at least mid-2013 as a way to continue to prop up the recovery.

Federal Reserve to keep fed funds rate low until 2013 - Aug. 9, 2011

 

[ziggy29]

Translation: The War on Savers rages on. Anyone who is retired and living partially on interest income may have thought they could weather a short storm of pathetic interest rates, but for this long? Will some of them be forced to move in with their kids and such?

 

[Beryl]

Bond funds are looking good.

 

[chinaco]

It seems to me that it is an obvious reaction to the market sell-off.

Their message seems to be... if you want any return, take more risk!

 

[Aiming_4_55]

Bond funds are looking good.

Which type of bond funds?

 

[haha]

Translation: The War on Savers rages on. Anyone who is retired and living partially on interest income may have thought they could weather a short storm of pathetic interest rates, but for this long? Will some of them be forced to move in with their kids and such?

I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?

It doesn't, but it sure is sweet for the banks and Wall Street.

Ha

 

[DblDoc]

I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?

It doesn't, but it sure is sweet for the banks and Wall Street.

Ha

It could work if you have enough of them (to paraphrase Groucho Marx)

DD

 

[haha]

It could work if you have enough of them (to paraphrase Groucho Marx)

DD

True, but 4% is 4%, regardless of what it is 4% of.

I think you are suggesting that given enough oversaving, the withdrawal rate can be so low as to basically make returns on the asset unimportant. That will be true for few people, but not very many because the average person worked to make and save money in order to spend that money.

Ha

 

[chinaco]

I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?

It doesn't, but it sure is sweet for the banks and Wall Street.

Ha

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.

 

[packrat44]

Their message seems to be... if you want any return, take more risk!

Vegas, here I come. Everything on red.

. That will be true for few people, but not very many because the average person worked to make and save money in order to spend that money.Ha

The "average" person has apparently made a false assumption in thinking they can spend the maoney they have saved.

I can see some that were ready to pull the plug say "Just one more year (or two or three).

 

[FreeAtLast]

It probably would not have been necessary if congress and the president enacted a
sound debt ceiling plan and the US rating did not sink to AA-.

 

[W2R]

I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?

It doesn't, but it sure is sweet for the banks and Wall Street.

Ha

Vanguard's Total Bond Market Index Fund has an SEC yield of 2.38%.

As you know, the 4% withdrawal rate unfortunately was not based on analysis of a 100% bond portfolio. Most of us have some equities or equity funds as well, and hope that this will help in compensating for inflation. Some others who have mostly bonds also have no problems living on 2% instead of 4%. Luckily, inflation has (supposedly) been low recently.

To those accustomed to the high returns of the 1990's, returns this low must be a big shock.

 

[TromboneAl]

Bond funds are looking good.

Can someone explain this? I guess if interest rates aren't going up, then bond prices won't go down, but the yield is so low...

 

[MichaelB]

There is very little good in this announcement. It is a sign that the US economy is sick with too much debt (gov't and mortgage) and some of that debt needs to be paid down and written off. If we can't find a way to pro-actively write it down, the Fed is going to make sure it is inflated away. Savers beware.

 

[IBWino]

Can someone explain this? I guess if interest rates aren't going up, then bond prices won't go down, but the yield is so low...

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.

 

[Geoffrey]

Pundits said the U.S. was not going to follow the path of Japan . . . anyone want to take bets that The Fed doesn't raise rates WELL BEYOND 2013? Chances are it won't be Bernanke that raises rates, but his successor, after Ben retires.

 

[obgyn65]

I am sorry if my question is basic, but are these the same bonds as municipal bonds ? I am thinking of buying a muni bond this month for $20k.

Which type of bond funds?

 

[braumeister]

I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?

I think that's 4% Celsius.

 

[Stevewc]

Haven't looked today butt !!!
Yesterday, Alley Bank was offering 1.9% for 4 years with 2 shots at an up grade. I'm beginning to wonder should I jump to that with cash on hand and ride it out for a while.
What say you folks?
Steve

 

[Ed_The_Gypsy]

What now.... This changes the picture a little. Seems to make their plans a little more transparent. However, if inflation kicks up... they might change their posture!

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.

In the middle of all this, the government cuts spending because of pressure. Exactly the wrong thing to do. Then there is the ongoing attack on business, mostly small business. The only good thing to come out of this may be reducing the number of government employees. I suggest starting with the elected ones.

It looks like a perfect storm of stupidity, incompetence and greed to me, in all elected officials north of dog catcher.

Has anyone figured out that Greenspan caused more damage to the US than Bin Laden?

 

[JOHNNIE36]

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.

 

[harley]

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.

 

[HFWR]

Fed Announcement 0% till mid 2013

Sounds like an ad for a car dealership or furniture store...

 

[cloud]

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.

 

[East Texas]

Sigh... I miss Paul Volcker.