|
|
08-03-2009, 08:30 AM
|
#101
|
Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,468
|
Quote:
Originally Posted by audreyh1
P.S. Can't bring myself to buy TIPs. Too US $$ centric. I don't trust the CPI anyway. I rely on the equities portion of my portfolio to protect me from inflation. Besides, some of my diversified bond funds buy TIPs when they think they are compelling value.
|
I am looking at inflation protection in the same way, and relying on my equity holdings to provide that protection instead of buying TIPs separately.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
08-03-2009, 09:34 AM
|
#102
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
|
I don't have the data to back this up but I think that stocks are somewhat negatively correlated to unexpected inflation whereas TIPS are positively correlated to this. In general according to Swedroe TIPS are negatively correlated to stocks but that is not always the case as we saw in late 2008. The reasons TIPS went down then was because of unexpected deflation plus there was a liquidity crisis -- some had to sell particularly some hedge funds.
It's a good point that ideally you want some bonds that have gone up to sell in order to buy stocks. But what happens if we have a period of unexpected inflation. Then TIPS would go up and Treasurys down and maybe equities down too. Then you could sell some TIPS to rebalance equities. So this is an argument for having Treasurys and TIPS. Just a thought.
|
|
|
08-03-2009, 02:40 PM
|
#103
|
Thinks s/he gets paid by the post
Join Date: Jun 2002
Posts: 1,633
|
Quote:
Originally Posted by ziggy29
If you're reasonably young and looking for a job, don't underestimate the value of job security and a pension considering the "total compensation" the offers you get. Having those things can make stock market volatility a lot less relevant to your day to day life and your ability to retire.
|
Absolutely!
Although I worried along with everyone else, there was zero impact on our lifestyle and standard of living thanks to a military pension with cola and 2 SS checks, also with cola.
My AA had been 5% cash and the remainder evenly divided between equities and fixed income. (I include laddered CD's as fixed, not as cash.) Although there were big paper losses on the equity side, I never panicked and, in fact, bought a little bit more Vanguard Total Stock Market. Over time, I may reduce the equities to 40%, but we'll see.
The great advantage of cola'd pensions that cover most, if not all, of your living expenses is that you can take whichever approach you want to with your portfolio:
- stay conservative because you don't need grow it too much to live
- be aggressive because you can tolerate bigger swings in value.
I tend toward the first, but I can see how others might view it differently.
Other lessons which were actually confirmed more than learned:
- being debt free helps a lot
- LBYM makes sense
- having a thrifty spouse is a great blessing
__________________
friar1610
|
|
|
08-03-2009, 02:55 PM
|
#104
|
Recycles dryer sheets
Join Date: Dec 2007
Posts: 482
|
Things I learned:
Cash looks really good when the market is tanking month after month.
Keep enough cash on hand so that you don't sell in a panic. For us, two income LBYM, six months of living expenses in cash appears to be enough.
When you think the market can't go down any more, it can.
When you think the market can't go up, it can.
None of those guys and gals on TV know where the market is going.
__________________
Retire date Jan. 10, 2018
|
|
|
08-03-2009, 03:35 PM
|
#105
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
|
Quote:
Originally Posted by lsbcal
I don't have the data to back this up but I think that stocks are somewhat negatively correlated to unexpected inflation whereas TIPS are positively correlated to this. In general according to Swedroe TIPS are negatively correlated to stocks but that is not always the case as we saw in late 2008. The reasons TIPS went down then was because of unexpected deflation plus there was a liquidity crisis -- some had to sell particularly some hedge funds.
It's a good point that ideally you want some bonds that have gone up to sell in order to buy stocks. But what happens if we have a period of unexpected inflation. Then TIPS would go up and Treasurys down and maybe equities down too. Then you could sell some TIPS to rebalance equities. So this is an argument for having Treasurys and TIPS. Just a thought.
|
I'm not sure TIPs have been around long enough to know who well they perform versus equities in terms of protecting a portfolio against inflation over the long term.
I'm not talking about the scenario in which unexpected inflation occurs in the short term and TIPs rise but equities (perhaps) suffer and then you can rebalance. I'm talking about the higher real returns that equities are supposed to return over bonds in the very long term. It is that higher real return that provides the inflation protection.
Of course the future may be very different from the past......
Audrey
|
|
|
08-03-2009, 04:28 PM
|
#106
|
Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Austin
Posts: 1,142
|
Quote:
Originally Posted by Want2retire
I am looking at inflation protection in the same way, and relying on my equity holdings to provide that protection instead of buying TIPs separately.
|
I used to look to equities for inflation protection also, but after staring at the data for a while, I am not so sure. The fly in the ointment occurred during our working lives: stagflation. Here is a chart of the CPI and S&P 500 (in real, inflation adjusted terms) from 1962 to 2008. Both are year-averages.
real S&P.jpg
Inflation took off in 1973 and the market tanked in 1974 It fell more than 30% and not did not recover (in real terms) for 13 or 14 years. Eventually the market took off on its bull run, but being underwater in real terms for 13 years is too long for me.
That said, I don't have a clue as to how to protect a portfolio against stagflation. I am not at all convinced that TIPS are the panacea. They are sensitive to interest rates and if the Fed makes a preemptive rate hike and are successful at preventing inflation from getting started, we could end up in a scenario of rising rates forcing TIPS values down with no significant offsetting CPI kicker.
Data sources:
Historical Inflation data from 1914 to the present
http://www.econ.yale.edu/~shiller/data.htm
|
|
|
08-03-2009, 04:46 PM
|
#107
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
|
Don't forget the the universe of stocks is not only DOMESTIC and not only the S&P 500 which is primarily large-cap companies. Even if inflation occurs in the US or the dollar weakens, having some good portion of your portfolio in international investments should help. You should also own small/mid-cap companies which have performed better with respect to inflation in the past.
It does seem as if you have to hold domestic stocks for at least 20 years to get ahead in terms of real return. My investment time horizon is 40 to 50 years and I'm more concerned about beating inflation over a long period — 20 years or more, so I'm not so concerned about shorter term inflation spikes.
Audrey
|
|
|
08-03-2009, 05:31 PM
|
#108
|
Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
|
Quote:
Originally Posted by Want2retire
I am looking at inflation protection in the same way, and relying on my equity holdings to provide that protection instead of buying TIPs separately.
|
Agree, plus there seems to be very little correlation between the "official" CPI and the CPI of an early retiree with no mortgage or other debt. Plus to top it all, I suspect that CPI numbers are rather susceptible to governmental cool aid drinking.
|
|
|
08-03-2009, 06:37 PM
|
#109
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
|
Personally, I like commodities and commodity producers to hedge inflation. TIPS are a nice component of a bond portfolio, especially when the matrket prices them stupidly cheap, but nothing beats commodities in an inflation spiral.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
|
|
|
08-03-2009, 06:57 PM
|
#110
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
|
I think this is more of a concern with a TIPS fund than with actual bonds. A TIPS ladder solves the problem of interest rate risk if you plan to hold each bond to maturity. While a ladder won't prevent the market price of the bonds from fluctuating, it does prevent me from caring.
|
|
|
08-04-2009, 08:06 AM
|
#111
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
|
As part of my bond allocation, I hold 15% in Fidelity Strategic Income FSICX, a "multisector" bond fund. This fund implements in a barbell investment strategy of US treasuries (including TIPs when value warrants) and foreign govt on one side, and US/foreign corporate debt plus emerging market bonds on the other. I hold this to give me some international bond diversification as well as some inflation protection.
This fund can be volatile!!! It was down 11.4% last year (so I did not sell any of it for rebalancing), but it has been a barn burner this year as up 21% YTD - wow! That is why my allocation to it is small. Nevertheless, I am hoping that over the long run it will help provide some inflation protection and US dollar devaluation protection over the long run.
Audrey
|
|
|
08-04-2009, 09:36 AM
|
#112
|
Full time employment: Posting here.
Join Date: Jan 2006
Location: Boston
Posts: 620
|
Quote:
Originally Posted by brewer12345
Personally, I like commodities and commodity producers to hedge inflation. TIPS are a nice component of a bond portfolio, especially when the matrket prices them stupidly cheap, but nothing beats commodities in an inflation spiral.
|
Brewer - is there an index-fund-like option for a commodity portion of one's asset allocation? I'm aware of Vanguard's Energy Fund, but I guess that only covers part of the universe of commodities out there.
|
|
|
08-04-2009, 10:10 AM
|
#113
|
Moderator Emeritus
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,873
|
Quote:
Originally Posted by friar1610
....
The great advantage of cola'd pensions that cover most, if not all, of your living expenses is that you can take whichever approach you want to with your portfolio:
- stay conservative because you don't need grow it too much to live
- be aggressive because you can tolerate bigger swings in value.
I tend toward the first, but I can see how others might view it differently.
....
|
This strikes me as the very definition of "wealthy."
|
|
|
08-04-2009, 12:23 PM
|
#114
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
|
Quote:
Originally Posted by Lusitan
Brewer - is there an index-fund-like option for a commodity portion of one's asset allocation? I'm aware of Vanguard's Energy Fund, but I guess that only covers part of the universe of commodities out there.
|
I'm not Brewer, which I'm sure makes Brewer happy...
DBC: Summary for DB COMMODITY IDX TRK - Yahoo! Finance
DBC is an ETF alternative. Also, PCRDX/PCRIX.
__________________
Have Funds, Will Retire
...not doing anything of true substance...
|
|
|
08-04-2009, 02:00 PM
|
#115
|
Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
|
Quote:
Originally Posted by friar1610
The great advantage of cola'd pensions that cover most, if not all, of your living expenses is that you can take whichever approach you want to with your portfolio:
- stay conservative because you don't need grow it too much to live
- be aggressive because you can tolerate bigger swings in value.
|
I haven't been able to find anything that helps sort through this conundrum. Best approach so far appears to be some sort of half-fast middle ground.
Wealthy or not, the former can cause overcautious investors to lose to decades of inflation while the latter can cause even aggressive investors to lose a lot of sleep at night. Even if the money isn't "necessary" (have to get back to you on that in four or five decades) you'd still like to be a good steward who makes the assets grow instead of burying everything in the backyard. You don't want to shrug your shoulders and mutter "Oh, well, it was only money." And even if the money proves to be unecessary, it could do a lot of charitable/scholarship work while you're still alive to appreciate the results.
Spouse and I put ourselves firmly in the second camp but even on paper the swings can be breathtaking. For now we're harvesting dividends and selling to rebalance but not inclined to buy anything priced above its long-term moving average.
__________________
*
Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."
I don't spend much time here— please send a PM.
|
|
|
08-04-2009, 06:40 PM
|
#116
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
|
Quote:
Originally Posted by Lusitan
Brewer - is there an index-fund-like option for a commodity portion of one's asset allocation? I'm aware of Vanguard's Energy Fund, but I guess that only covers part of the universe of commodities out there.
|
PCRDX or PCRIX (which is cheaper if you can get access to it) are my choice. There are lots of others out there, though.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
|
|
|
08-04-2009, 07:05 PM
|
#117
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
|
Quote:
Originally Posted by Lusitan
... I'm aware of Vanguard's Energy Fund, but I guess that only covers part of the universe of commodities out there.
|
I have held and traded XLE, an energy ETF. I just checked it against Vanguard Energy Fund and found that they correlate amazingly well.
Other commodity-producer ETFs I have owned are XME (metal), XLB (basic material), MOO (agriculture), and OIH (oil service). For hormone reasons - to borrow from unclemick - I peeked inside these ETFs and have traded individual companies inside them that appealed to me. I might not do any better than trading, er balancing, using these ETFs, but old habits die hard, plus an ER'ed guy who has no interests in spectator sports needs something to do. Heh heh heh...
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
|
|
|
08-05-2009, 08:44 AM
|
#118
|
Full time employment: Posting here.
Join Date: Jan 2006
Location: Boston
Posts: 620
|
|
|
|
08-05-2009, 03:40 PM
|
#119
|
Thinks s/he gets paid by the post
Join Date: Jun 2002
Posts: 1,633
|
Quote:
Originally Posted by Nords
I haven't been able to find anything that helps sort through this conundrum. Best approach so far appears to be some sort of half-fast middle ground.
Wealthy or not, the former can cause overcautious investors to lose to decades of inflation while the latter can cause even aggressive investors to lose a lot of sleep at night. Even if the money isn't "necessary" (have to get back to you on that in four or five decades) you'd still like to be a good steward who makes the assets grow instead of burying everything in the backyard. You don't want to shrug your shoulders and mutter "Oh, well, it was only money." And even if the money proves to be unecessary, it could do a lot of charitable/scholarship work while you're still alive to appreciate the results.
Spouse and I put ourselves firmly in the second camp but even on paper the swings can be breathtaking. For now we're harvesting dividends and selling to rebalance but not inclined to buy anything priced above its long-term moving average.
|
Just to clarify (since you quoted a post of mine),,,
When I say I tend toward the conservative of the two options, , I'm referring to something in the high 40% range for my equity portion (although Mr. Market reduced that a bit over the past year and a half.) And I'm 64 yo. Some people my age would consider my equity allocation to be aggressive. To me, aggressive at my age would be something like 70% equities.
My impression is that you're a fair amount younger than I, perhaps with a slightly smaller USN pension and maybe more obligations to kids. Were I in your situation, I would probably tend toward a more aggressive approach. At my age and station in life, there's just no reason to go crazy with investments, but the threat of inflation certainly merits a reasonable chunk in equities.
__________________
friar1610
|
|
|
08-05-2009, 04:11 PM
|
#120
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
|
I've said several times that one of my lessons learned was that I really need a $100K in CDs, savings accounts to sleep better. Cash that is "stickier" than a money market in order to prevent my from going all-in and buy falling stocks during bear markets.
I am halfway there. I took advantage of this beginning of the bull market or is it a sucker bear market rally to open up a real savings account (with Schwab) and CD's with Penfed. I even throw away the paper work that makes it easy to move money from Schwab bank to Schwab brokerage. Does anybody feel foolish locking up money at 3.5% for 5 years or 1.35 in a savings account.
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|