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Old 12-27-2011, 04:22 PM   #61
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One word Hyperinflation. Equity investors in the Weimar Republic actually did ok while bond/cash were wiped out. There are no risk free investments.
I have equites, (index funds with low expense ratios) so if my boring stuff stops being able to cover my retirement expenses because of hyperinflation I'll have them to fall back on. Right now I don't see that being a big issue, but I'm prepared. At 55 I'll ER and will get $20k a year from TIAA-Traditional and $20k from rental income. Once SS and UK state pension start I'll have an income surplus.
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Old 12-27-2011, 05:22 PM   #62
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I just looked at my "number". I figured that if I were 100% risk-averse and just looked to find something that simply kept up with inflation, no more than that, I would still have enough to live on for 30 years. That's assuming no SS, and of course we have no pension. I don't think I will last more than 30 years, nor does my wife. And when we croak, we will still have real estate to leave behind for my children.

Still, I am not doing that 100% safe method (does one even exist?). I like to invest, to put my money into what I believe in. So, it goes up and down, and that adds spice to life. I am currently 71% in equity, some fairly high-beta stocks too (more economic sensitive).

I often ask myself, while people in the 3rd world have to worry about their next meal, or worse, like the North Koreans who worry that they may not be seen as wailing loud enough in distress in the wake of their beloved leader and may get hauled off to the gulag, why am I worried about the obviously insignificant risks that I may face?

So, if I will not be able afford my current homes, and have to live full-time in my little 25' motorhome (which does not even have a nice countertop, just a Formica one, for crying out loud), would that be the end of the world? Let's see... I would have to move around more. I would be outdoors more, so as not to be cooped up in that little space. I would be more active, and healthier...

Gee, I think I am talking myself more and more into going full-time in this little RV, whether I have to or not. Well, at least for a long trip to Alaska first...

I guess I have to sweet talk the missus some more, trying to get her on-board (literally:-) Heh heh heh...
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Old 12-27-2011, 06:33 PM   #63
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I thought of one practical advantage which might give the "edge" to saving rather than to investing. Those who "invest", must save money first. But, they probably are counting on their investing to do the heavy lifting, so they probably save less than one who depends only on what he saves. This leaves them with more to spend (aka, a higher standard of living.) Are you with me so far? So the "saver" learns to live on less (in general) than the investor. Bad investing results would therefore cause the investor more grief because their spending is already higher than that of the saver. The saver already knows how to live on less. He needs less because he saves more.

But I think moderation is the key. Save AND invest. YMMV
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Old 12-27-2011, 08:04 PM   #64
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I often ask myself, while people in the 3rd world have to worry about their next meal, or worse, like the North Koreans who worry that they may not be seen as wailing loud enough in distress in the wake of their beloved leader and may get hauled off to the gulag, why am I worried about the obviously insignificant risks that I may face?

So, if I will not be able afford my current homes, and have to live full-time in my little 25' motorhome (which does not even have a nice countertop, just a Formica one, for crying out loud), would that be the end of the world? Let's see... I would have to move around more. I would be outdoors more, so as not to be cooped up in that little space. I would be more active, and healthier...

Gee, I think I am talking myself more and more into going full-time in this little RV, whether I have to or not. Well, at least for a long trip to Alaska first...

I guess I have to sweet talk the missus some more, trying to get her on-board (literally:-) Heh heh heh...
It might not be pan B (more like C or D), but a modest life as a fulltimer in a small RV/trailer is definately a low cost life I could fall back on oce the kids are launched.
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Old 12-28-2011, 10:14 AM   #65
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Outing myself as well as a Saver, not Investor.
Been down that road, didn't care for it. Equities especially. How many stories do we have to read before you realize a great number of publicly traded companies cook the books to satisfy shareholder demands, executive vanity or simply to conceal incompetence (olympus, etc..) ?
I mean, more power to you all but to often I watch these smarmy CEOs on the television and realize the financial reports and stock prices are manipulated six ways from Sunday and I'll never have the inside knowledge to know if a company is truly well run or not.
All our funds are either in GIC/HIA (CDs to you in the US) or actively being used in our small business. And, I can assure you, those books are slightly cooked too... ha ha
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Old 12-28-2011, 10:22 AM   #66
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I'm not saying that you shouldn't be throwing the dice investing in the stock market, just that the value of saving has been lost since the mutual fund industry began to sell it's products aggressively. CDs and savings accounts are like the Rodney Dangerfield of the financial world....they just don't get any respect.
But correlation does not equal causation here. The simple fact is that (a) "Rodney Dangerfield" has tended to lose money after inflation and taxes in recent years.... and (b) the loss of DB pensions for many folks means that their only realistic hopes for a comfortable retirement require more long-term growth of personal savings than Rodney can provide alone. As I said before, if I knew I had a COLA'd pension that exceeded my living expenses and I had the health care beast covered, it would be a LOT easier to pull out of stocks because I wouldn't *need* their growth potential to retire.

Both of these factors, I think, have made putting a huge chunk of excess cash flow into low-yield "safe" savings vehicles a pretty good way to "run in place" and make them unsuitable for most folks whose only hopes to retire depend on a decent amount of growth over (say) 25+ years. People who don't have large pensions waiting for them at the end of their careers aren't likely to be able to retire by putting money aside in financial instruments that provide (at best) a real 1% annual return (and often negative real return, as we're seeing today's real returns in the -3% range, give or take).
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Old 12-28-2011, 10:53 AM   #67
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I often ask myself, while people in the 3rd world have to worry about their next meal, or worse, like the North Koreans who worry that they may not be seen as wailing loud enough in distress in the wake of their beloved leader and may get hauled off to the gulag, why am I worried about the obviously insignificant risks that I may face?

So, if I will not be able afford my current homes, and have to live full-time in my little 25' motorhome (which does not even have a nice countertop, just a Formica one, for crying out loud), would that be the end of the world? Let's see... I would have to move around more. I would be outdoors more, so as not to be cooped up in that little space. I would be more active, and healthier...
It sure puts things in perspective when you look at them that way doesn't it? I wonder what the chances are of a North Korean resident being able to wander freely in a motorhome wherever they wanted within their country?
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Old 12-28-2011, 11:00 AM   #68
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This is a really strange time to deal with our money whatever we do with it. Neither savings nor investments are keeping up with inflation right now--both options suck. And many of us learned we really aren't that risk tolerant.

Go ahead and invest, get these great returns in 2011 (from http://www.usatoday.com/money/perfi/...e/52056356/1):

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The average diversified U.S. stock mutual fund has fallen 5.9% this year, vs. a 1.4% loss for the Standard & Poor's 500-stock index, says Lipper, which tracks the funds. Out of 8,036 funds, 7,399, or 92%, are showing a loss — and some are doozies.
Or, go ahead and put your money in the bank--let's use PenFed! where you can get that 0.19 percent on your savings account, up to 0.30 on a money market, and up to 2.75 on a 7-year CD. At least your money is safe in FDIC/NCUA/whatever federally insured institutions for the most part and won't be losing money.

This recent thread here highlighted some of the e-r.org folks' portfolio performance this past year (and we still have a couple of trading days to go): How has your portfolio done in 2011?
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Old 12-28-2011, 01:37 PM   #69
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This is a really strange time to deal with our money whatever we do with it. Neither savings nor investments are keeping up with inflation right now--both options suck. And many of us learned we really aren't that risk tolerant.


l
It has been an exceptionally challenging time to invest (or save) for the last 18 months. With the two traditional choices heads (savings) I lose small and tails (investing) I could lose big. Another option real estate looked even worse especially if you took at a normal 25% down mortgage.

Gold was a good investment if your timing was perfect buying the beginning of the year and selling in the middle.

Still compared to so many Americans with neither jobs nor savings, I feel very fortunate.
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Old 12-28-2011, 02:01 PM   #70
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As I said before, if I knew I had a COLA'd pension that exceeded my living expenses and I had the health care beast covered, it would be a LOT easier to pull out of stocks because I wouldn't *need* their growth potential to retire.
Putting part if your money into a low yield low risk account like a TIAA Traditional will give you something like a DB pension for retirement. Having a basing income vehicle with 20 plus years of contributions reduces the need for equity exposure in retirement.
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Old 12-28-2011, 02:32 PM   #71
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/snip/

When I hear these type of complaints, and over the years I have heard a few, I always first ask the person, " have you sold it yet?". Generally the answer is no at which point I remind them that they haven't lost anything until they sell.
I know there are a lot of people who think this way... but it is not true...

You HAVE lost value... there is nobody who is willing to buy your stock or ETF at the price you paid... which makes it a loss.... it has not been 'realized' yet because you have not sold..... and there is a chance that the value will go back up and you might gain back all of your losses, but to say you haven't lost anything at that moment in time is wishful thinking...
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Old 12-28-2011, 02:40 PM   #72
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Putting part if your money into a low yield low risk account like a TIAA Traditional will give you something like a DB pension for retirement. Having a basing income vehicle with 20 plus years of contributions reduces the need for equity exposure in retirement.
This can work if you can save 40-50% (or more) of your after-tax income for 30 years. Otherwise the pitiful growth will leave you with something like a DB pension, but a very puny one that probably wouldn't even exceed your SS income.

Then again, investing (appropriately) for decades and then rolling some or all of it into an SPIA is another way to "buy" a pension, too -- but at today's interest rates the cost of an income stream is way too high.
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Old 12-28-2011, 02:40 PM   #73
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But correlation does not equal causation here. The simple fact is that (a) "Rodney Dangerfield" has tended to lose money after inflation and taxes in recent years.... and (b) the loss of DB pensions for many folks means that their only realistic hopes for a comfortable retirement require more long-term growth of personal savings than Rodney can provide alone.
+1

I didn't lose a DB pension, I never had one to lose.

Had I decided to 'play it safe' with CD's and passbook savings accounts when I began investing for retirement in 1978, not only would I still be working instead of being retired for 6+ years, I would have to continue working for at least five more years (to age 70) to approach the income I currently have.

When it comes to early retirement, 'saving' instead of 'investing' is a quaint concept but not very realistic. The risk I took with a 60/40 allocation of stock and bond mutual funds over that 27 year period was well worth it for me and history indicates it will be the same in the future.

I suspect 'recency' is coloring some judgement on this thread. Things haven't been all that rosy of late but the long term will likely be considerably better. And if not, we can expect the usual suspects to show up here to say "I told you so".
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Old 12-28-2011, 02:45 PM   #74
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I suspect 'recency' is coloring some judgement on this thread. Things haven't been all that rosy of late but the long term will likely be considerably better. And if not, we can expect the usual suspects to show up here to say "I told you so".
I tend to agree. I mean, look at the 1966-82 period -- that was 16 years of terrible market performance (with higher inflation for the most part) and we've only had 11 so far. Heck, 11 years into the last terrible cycle -- 1977 -- I'll bet people were saying the same things, and the "Death of Equities" was what, two years later?
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Old 12-28-2011, 02:48 PM   #75
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It might not be pan B (more like C or D), but a modest life as a fulltimer in a small RV/trailer is definately a low cost life I could fall back on oce the kids are launched.
This guy has been doing it for 9 years. It can be done.

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Old 12-28-2011, 02:51 PM   #76
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Then again, investing (appropriately) for decades and then rolling some or all of it into an SPIA is another way to "buy" a pension, too -- but at today's interest rates the cost of an income stream is way too high.
True. I have heard it recommended that people who want a SPIA should dollar cost average their money by purchasing a number of smaller annuities over a period of time, thus allowing for higher interest rates in the future. I am not recommending this, just passing it on. I do not own a SPIA.
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Old 12-28-2011, 02:56 PM   #77
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True. I have heard it recommended that people who want a SPIA should dollar cost average their money by purchasing a number of smaller annuities over a period of time, thus allowing for higher interest rates in the future.
And also smaller amounts in multiple SPIAs is less likely to cause you to lose everything in case of defaults. If a state guarantee fund backs each annuity up to $100,000, for example, buying three $100,000 annuities instead of one $300,000 annuity could provide greater asset protection against failure of the insurer. In that sense it's similar to having multiple savings accounts or CDs with multiple institutions so you don't exceed FDIC limits with any one bank.
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Old 12-29-2011, 12:10 AM   #78
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I know there are a lot of people who think this way... but it is not true...

You HAVE lost value... there is nobody who is willing to buy your stock or ETF at the price you paid... which makes it a loss.... it has not been 'realized' yet because you have not sold..... and there is a chance that the value will go back up and you might gain back all of your losses, but to say you haven't lost anything at that moment in time is wishful thinking...
No NO NO
Ben Graham in the Intelligent Investor explained that value of a stock is the sum of all of the future dividend payments of it. In the absence of a change in the financial condition of company the value remains relatively constant.

McDonalds MCD dropped roughly 1% today to from 100.55 to $99.58. It has roughly 1 billion shares outstanding which means that somebody who owns a share (not me) would own one one billonth of the company. Let say that McDonalds make $.25 net profit for every burger they sell. Rather than paying dividends McDonald decide to distribute profits to shareholder for every billion burgers, fries, shakes etc. they sell, the send the shareholder a check.

Now there may have been some news I missed, but I seriously doubt that McDonalds is going to sell 1% less burgers over the next 100 year or make 1% less profit today than they did yesterday. It is much more than likely I am going to get pretty much exactly the same number of checks and the same size from McDonald today as I did yesterday.

It is true that Mr Market is willing to pay me 1% less for those future checks today than yesterday but the dollar value of those checks is the same cause I still owe one billionth of McDonalds.

All assets have an intrinsic value which is separate from the price at given time. The price of my house has fluctuated a lot over the past 6 years up 50% from what I bought down 25% from the peak. However the intrinsic value of it as place to live with a very nice view in a warm climate hasn't changed much. "Price is what you pay, value is what you get." Now intrinsic value of things does change, especially for individual companies But great thing about Mr. Market is your never have to accept it price you can wait for another day.
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Old 12-29-2011, 07:28 AM   #79
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No NO NO

Now intrinsic value of things does change, especially for individual companies But great thing about Mr. Market is your never have to accept it price you can wait for another day.
Tell that to the people who bought ENRON.

The dividend point is well taken, that's why I own Wellesley, but most people will look at the price and if it's gone down they feel that they've lost money and from that flows some big errors they make when investing ie sell low and buy high.

Part of my praise for saving is that it gets away from the complications of investing. If I was to advise a beginner I'd start with Mr Micawber's injunction about spending; once that is done I'd encourage them to save until they have a years worth of spending in an easy access account; then save into a long term saving account or annuity with the goal of it generating 50% of income requirements at retirement and once that is going ok only then think about investing in index mutual funds.

As an example putting $8k a year for 30 years into something like TIAA-Traditional will produce $400k and that will buy $30k annual income annuity for a 65 year old man. Combine that with SS and you have the average income for most Americans covered, even before you touch your mutual fund investments.
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Old 12-29-2011, 09:29 AM   #80
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No NO NO
Ben Graham in the Intelligent Investor explained that value of a stock is the sum of all of the future dividend payments of it. In the absence of a change in the financial condition of company the value remains relatively constant.

McDonalds MCD dropped roughly 1% today to from 100.55 to $99.58. It has roughly 1 billion shares outstanding which means that somebody who owns a share (not me) would own one one billonth of the company. Let say that McDonalds make $.25 net profit for every burger they sell. Rather than paying dividends McDonald decide to distribute profits to shareholder for every billion burgers, fries, shakes etc. they sell, the send the shareholder a check.

Now there may have been some news I missed, but I seriously doubt that McDonalds is going to sell 1% less burgers over the next 100 year or make 1% less profit today than they did yesterday. It is much more than likely I am going to get pretty much exactly the same number of checks and the same size from McDonald today as I did yesterday.

It is true that Mr Market is willing to pay me 1% less for those future checks today than yesterday but the dollar value of those checks is the same cause I still owe one billionth of McDonalds.

All assets have an intrinsic value which is separate from the price at given time. The price of my house has fluctuated a lot over the past 6 years up 50% from what I bought down 25% from the peak. However the intrinsic value of it as place to live with a very nice view in a warm climate hasn't changed much. "Price is what you pay, value is what you get." Now intrinsic value of things does change, especially for individual companies But great thing about Mr. Market is your never have to accept it price you can wait for another day.

I think you are mixing up the intrinsic value with the what is someone willing to pay me today value. As you mentioned with your house... the amount someone was willing to pay fluctuated a lot... the value of it went up... someone was willing to lend you money on that increased value... when it went back down, nobody would lend you money...

The point I am trying to make is that saying you do not lose anything until you sell has kept people is horrible investments because they don't want to 'lose' that money.... and I say 'yes, you have LOST it, now what do you want to do going forward'.... and I have heard it many times from people (the most recent from the mother of my best friend who owned GM debt prior to BK)... I told her to sell as she had lost money... but she said 'I have not lost anything until I sell'.... well, the BK court made her sell.... at an even bigger loss than when I told her....

Now, you are correct that if you own 1 billionth of a company today and the stock price goes down, your ownership of the company does not change... but if the price of your company goes down 50% today.... you lost 50% in value... sure, tomorrow it might go right back up, but it might not... you have to make your decision of should I keep my money in this stock or move it to another.... what is my best option today... most of the time it is to leave it where it is...

But would you agree that Netflix has lost value this year IOW, the true value of the stock is lower... if so, then would someone who bought it at $300 per share have lost value even though he has not sold the stock I think the answer is yes, he has lost value... and I would be hard pressed to understand anybody who said no, he has not lost value... (the stock is selling at about $68 now)....
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