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Old 06-19-2015, 10:39 AM   #21
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I still think the least risky path over the next 10 years is the proper AA in stock/bonds. Some might get the timing right by using stocks/cash temporarily but I don't see a methodology to get this right other then ad hoc. See my numbers above on one rising rate period.
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Old 06-19-2015, 10:41 AM   #22
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Well no, that's not true. The market has been overrun by the fed. They have pushed the independent money into other markets, by design.


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I won't argue that, but I will say there's still a very large, liquid secondary market for bonds.

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The ongoing War on Savers has been forcing a lot of reluctant money into the market.
"Savers" have never actually made out in interest bearing accounts. It's a good place to stash short-term money, but MMs and CDs will eventually lose out to inflation. Waxing nostalgic for 10% CDs involves very selective memory.
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Old 06-19-2015, 12:25 PM   #23
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Regarding the Rewahoo's OP, I think an excellent tool to determine one's long term exposure to stocks and bonds is VPW (see VPW thread here and Bogleheads for particulars). It's practically the only tool I know that shows portfolio year to year numbers in inflation adjusted terms and let's one see the past portfolio exposure risk.
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Old 06-19-2015, 01:13 PM   #24
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"Savers" have never actually made out in interest bearing accounts. It's a good place to stash short-term money, but MMs and CDs will eventually lose out to inflation. Waxing nostalgic for 10% CDs involves very selective memory.
Do you have any specific research on that topic? I have been interested in this myself. I found this chart and blog -

Historical CD Savings Rates vs Inflation | Free By 50

"In 10 out of 44 years the real rate of return was negative. The worst year was 1979 when the real return was -2.78% and the best year was 1982 when the real return was 9.40%. During that time inflation was very high. From 1967 to 2010 the average real return is 1.91% and the median annual real rate of return is 2.17%.

Bottom Line : Over the long run then I think its fairly reasonable to expect CDs to return about 2% over inflation. "

Prior to recent low rates, longer term TIPS seemed to have been yielding around 2% + inflation, so these real returns seem plausible, but I've been looking for something on the topic from a university or more well known source.
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Old 06-19-2015, 02:03 PM   #25
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Can find average CD rates, and inflation rates, but not one combined, and I'm too lazy to plug in the numbers...
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Old 06-19-2015, 02:13 PM   #26
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Check out this thread: Historical CD rates vs Inflation
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Old 06-19-2015, 02:24 PM   #27
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Check out this thread: Historical CD rates vs Inflation
Aha! I note that someone in that thread asked what happened around 2000. My answer would be that banking changed from "banking" to "financial engineering"...
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Old 06-20-2015, 12:02 PM   #28
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Can find average CD rates, and inflation rates, but not one combined, and I'm too lazy to plug in the numbers...
I found a table from Putnam Investments with both -

https://www.putnam.com/literature/pdf/II514.pdf

From 1985 to 2014 - Average real return of 1.48% for CDs. A zero real return over 40 years would provide a 2.5% SWR, so CDs may be able to improve on that, at least if we see average real CD returns into the future.
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Old 06-20-2015, 12:12 PM   #29
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https://www.putnam.com/literature/pdf/II514.pdf

From 1985 to 2014 - Average real return of 1.48% for CDs. A zero real return over 40 years would provide a 2.5% SWR, so CDs may be able to improve on that, at least if we see average real CD returns into the future.
Quite a contrast in that table if you compare the first 15 years (positive returns every year) to the second 15 (negative returns 60% of the time). The big question is will the next 15 years look more like 85-99 or 00-14?
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Old 06-20-2015, 01:28 PM   #30
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Quite a contrast in that table if you compare the first 15 years (positive returns every year) to the second 15 (negative returns 60% of the time). The big question is will the next 15 years look more like 85-99 or 00-14?

My guess is the latter. Obviously 85-99 everyone was chasing the inflation boogeyman from the 70s and early 80s and ready for it to return at a moments notice....Unless of course an escalating inflationary cycle were to ever begin again and then I would be wrong of course.


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Old 06-20-2015, 01:53 PM   #31
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I'm surprised that there's any real return to speak of, though I can't argue with "the data".
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Old 06-20-2015, 02:10 PM   #32
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I'm surprised that there's any real return to speak of, though I can't argue with "the data".

Maybe it was just local but it seemed like you could easily find CD specials all the time back in the day. I remember having a CD somewhere around 2006-07 that was almost 7% though inflation was nowhere near that. There certainly wasnt a special when I reupped my last remaining CD. A generous 0.34% percent. Let the compounding begin!


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Old 06-20-2015, 02:36 PM   #33
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What stops me reading the article is the name of the author.......

OK - I admit I looked at the tuning table about 10 years ago and found it useful and it's nice to have an updated one.
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Old 06-20-2015, 02:43 PM   #34
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It a secondary indicator. A good argument for your point of view would be that despite the 0 bound, banks are holding excess reserves still, to the dismay of fed governors. They can't seem to encourage the banks to lend full tilt - they are acting as if the reserve ratio is higher and it's limiting the money supply effect of the funds rate.


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I heard somewhere that other financial institutions are starting to offer mortgage loans.
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Old 06-20-2015, 02:44 PM   #35
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Quite a contrast in that table if you compare the first 15 years (positive returns every year) to the second 15 (negative returns 60% of the time). The big question is will the next 15 years look more like 85-99 or 00-14?
Perhaps neither. The link in your first post is a nice reminder that we don't need to be at either allocation extreme and can do quite well taking some risk without too much exposure to loss of capital or loss from inflation.
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Old 06-20-2015, 04:20 PM   #36
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Maybe it was just local but it seemed like you could easily find CD specials all the time back in the day. I remember having a CD somewhere around 2006-07 that was almost 7% though inflation was nowhere near that. There certainly wasnt a special when I reupped my last remaining CD. A generous 0.34% percent. Let the compounding begin!


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I remember some of those deals in the late 80s/early 90s, but I assumed they were bank/CU specific, in that they needed to attract deposits. Sort of like milk as a grocery store loss leader.
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