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Old 02-29-2008, 11:44 PM   #41
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For those who need more than the stock market's historical 10-11%, why? That return has historically been more than enough to cover inflation and still return 4% minimum. At 11% fixed you could still get 4% even if inflation were 7% for all 30 years. Periods of inflation higher than 7% have always historically been much shorter than 30 years, so you would have to be preparing for some much worse than historical inflation to require more than 11%.
I felt I needed more (15% to 18%) because I expect to earn that return in the market. I do not
need to - I live on my dividends, so all I need is for the dividends of my stocks to be raised as
fast as the inflation rate to maintain my standard of living, and I could live on half that easily enough.

But I enjoy analyzing and investing. I try to increase the 'intrinsic' value of my portfolio (based on my
opinion of the value of the future dividends of each company) by trading the stocks I own that become
relatively overvalued for stocks I track but do not own that are relatively undervalued. I have
gained a pretty steady 13 - 18% each year of intrinsic value for the last 14 years, which translates
into -7% to +47% of market value (average 17+ %).

I realize I could just be lucky, but this strategy allows me to sleep at night, while maintaining a 100%
equity position of top quality stocks with long histories of rising earnings and dividends, and keeping
me intellectually active to boot. If I fail, I doubt my 0.1% expense ratio will kill me.
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Old 03-01-2008, 07:43 AM   #42
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For those who need more than the stock market's historical 10-11%, why? That return has historically been more than enough to cover inflation and still return 4% minimum. At 11% fixed you could still get 4% even if inflation were 7% for all 30 years. Periods of inflation higher than 7% have always historically been much shorter than 30 years, so you would have to be preparing for some much worse than historical inflation to require more than 11%.
Future inflation rates are not guaranteed to match historical inflation rates.

Similarly, housing was expected to always increase and never decrease, based on historical information. Remember just five years ago, when people would say that it was an impossibility for housing to ever decrease, short of total economic collapse? Their justification was that it couldn't because "they aren't making any more of it [land]", and because history had taught us as much.

It seems to me that there is a fair chance (if not a likelihood) that we will experience inflation exceeding historical levels during my lifetime. With half my money stuck at a fixed interest rate, it had better be high. It wouldn't have to be so high if it was a smaller portion of my nestegg, that I could more easily afford to lose, or if it was COLA'd.

It has been a very long time since we have had a period of high inflation and high interest rates, but I remember what it was like (pretty ugly! ).
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Old 03-01-2008, 09:02 AM   #43
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I'd say a fixed 5% over inflation might do it for me.
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Old 03-01-2008, 10:57 AM   #44
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Maybe the question should be: With your current investment portfolio and strategy, what is your expected return?
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Old 03-01-2008, 12:19 PM   #45
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Regarding fixed income, here's another option: Funding private loans

We are going in this morning to pick up a payoff check on one of the loans we funded, and will be hunting for another. I like that they are secured by property, have a 5 year payoff, and that we can go out and look at the physical investment. Last loan we did i put an early payoff penalty in to prevent it paying off in less than a year - we funded the loan that is paying off today back on 10-06.
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Old 03-01-2008, 12:28 PM   #46
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7.25% for me, I'm all in. And man that Vanguard high yield (junk) bond fund (yield ~8.5%) is starting to look good. Sorry, bit off topic.
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Old 03-01-2008, 12:48 PM   #47
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You guys all crack me up.........

I just started to read this thread.... and must agree with FD...

Wanting 16% guaranteed!!! Heck, you are probably not even close to that now with all the risks you are taking.....

Some of you need to take a reality pill or something...
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Old 03-01-2008, 02:08 PM   #48
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7.25% for me, I'm all in. And man that Vanguard high yield (junk) bond fund (yield ~8.5%) is starting to look good. Sorry, bit off topic.
Junk bonds tend to suffer early in economic downturns. But man, junk bond funds can be a rocketship once the market perceives the recovery is beginning, as they are economically sensitive to economic conditions like stocks, not so much interest rate movements like bonds.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 03-01-2008, 02:36 PM   #49
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Future inflation rates are not guaranteed to match historical inflation rates. It has been a very long time since we have had a period of high inflation and high interest rates, but I remember what it was like (pretty ugly! ).
Yes, I remember the late 70's too. The other side of it is that it created a once in a lifetime buy in fixed income. Rates have dropped for 28 years since and bonds have rallied. The inflation didn't really last that long. In '74 nixon panicked with wage price controls as inflation was running about 4%, in '80 inflation peaked. I'm not sure a inflation surge would be that ugly for some retirees, our costs go up but for those of us with assets, our fixed income goes up too. I'd like to lock in some 10% yields, selfish I suppose. These 3% fixed rates and low stock returns are pretty devasting to my spreadsheet. Sometimes it's not what it seems.
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Old 03-01-2008, 02:49 PM   #50
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Yes, I remember the late 70's too. The other side of it is that it created a once in a lifetime buy in fixed income. Rates have dropped for 28 years since and bonds have rallied. The inflation didn't really last that long. In '74 nixon panicked with wage price controls as inflation was running about 4%, in '80 inflation peaked. I'm not sure a inflation surge would be that ugly for some retirees, our costs go up but for those of us with assets, our fixed income goes up too. I'd like to lock in some 10% yields, selfish I suppose. These 3% fixed rates and low stock returns are pretty devasting to my spreadsheet. Sometimes it's not what it seems.
True, that. The thing is, so many people felt inflation was uncontrollable, and doom and gloom was rampant. So even while we might consider a 30-year Treasury yielding 12% to 15% as the choicest "sure thing" ever, there was enough angst at the time that people weren't jumping all over them.

Can you imagine buying long-term zero coupon bonds in 1981? Wow.

The closest thing I ever got to a "safe" fat pitch was the I bonds I purchased when they were paying 3.4% over inflation in 2000. I just wish I had more money to max out on them at the time.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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