Malkiel Defends Efficient Market Theory

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Cut-Throat, Curious question. *You said you were currently at 67% stock and planned to go down to 55% early next year. I recall from earlier posts that your target equity allocation was 60%. *Is this shift to 55% a "permanent" change in your equity target? thanks! bill *

No, I will decrease my exposure to stocks the older that I get, all the way down to 25%.

Basically I am following a 110-age Formula.

I cannot shift my Allocation this year due to Tax Implications. But I want to be at 55% stocks next year.

I'll be 54 next year. Close enough.

[WilliamG]

Cut-Throat, thanks for sharing what you're doing. I have been at 55% equity since I retired at 55 and will soon be turning 60. I have been toying with changing to a 50-50 allocation and just leaving it there, or maybe further reducing it later as I age. I guess 50% equity would fit the 110-age approach for me right now. I really am leary of taking any more risk than I have to. Guess I'll be figuring on it some more the next few weeks! Adjusting after what may be a couple of pretty decent equity return years would also be nice ... bill

[Bob_Smith]

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Was there anything specific that gave you religion?

Not really - it was 50/50. I do like the higher dividend yield I may get on the value side. I think I would be able to almost make it on interest and dividends without selling off as I go. But it really came down to just needing to decide and get it done. It was almost a coin toss. Actually, I doubt it will make much difference.

[wabmester]

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Actually, I doubt it will make much difference.

Same here. I love reading the theories, but mostly just to marvel at the simplistic assumptions being made. In the end, there is no substitute for thinking.

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I own some TIPS in a Vanguard fund in a tax-deferred account, but I've never bought them direct from the Treasury. *Anyone do that? billystu

Hi-

I am constructing a ladder of 10 year TIPS which I buy at treasury auction through Fidelity. Costs $50 per transaction regardless of amount. I buy $10K at a crack, with the intention of holding till maturity. .5% averaged over 10 years looks pretty good. I have also purchased some corporate inflation protected Internotes, which are similar but pay out the inflation premium monthly rather than adding it to principal. Issuers include Prudential and Household finance, and maturities range from 5 to 10 years. I think the inflation protected internotes would be a good deal for RE types who are past the accumulation phase. No fee on those - at least none that I see - I assume Fidelity gets paid by the issuer.

R

[wzd]

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Costs $50 per transaction regardless of amount.

Fidelity recently reduced its bond fees, and publishes some markup/down information. I believe that the auction fee is now $0 for online orders, and $19.95 for representative placed orders.

[MooreBonds]

I am constructing a ladder of 10 year TIPS which I buy at treasury auction through Fidelity. Costs $50 per transaction regardless of amount. I buy $10K at a crack, with the intention of holding till maturity. .5% averaged over 10 years looks pretty good. [/quote]

Hey Richard...are you aware that you can buy any Treasury security (including TIPS) through Treasury Direct (www.treasurydirect.gov) for NO FEE/COMMISSION.

If you know you are holding them through maturity, it might be worth the $50 to fill out two forms, open an account, and have them debit your checking/MM account for the price of the bond. They hold the bond electronically, and you can access your account on-line. If you're worried about selling it, you can have your bank guarantee your signature, and send in a form to have the Federal Reserve Bank of Chicago sell your TIP on the open market for a $34 fee.

Sure, it's a small hassle to have your bank guarantee (not notarize) your signature, but if you know you aren't going to sell it, it's worth it to me to save the $50 (or, $250 after 5 purchases) and go through the Treasury Direct system and have them debit your checking account.

[wzd]

From fidelity.com:

All US Treasury auction orders placed online on Fidelity.com are free of charge.

Secondary market fees (concessions) are $19.95 + .50/bond, which I think means $1000. Fees have really been cut, so I am not sure it is worth it to have seperate Treasury accounts anymore.

I expect that the fees cuts are a competitive action, so others must already be low, or will probably cut them soon.

[quote] * *Hey Richard...are you aware that you can buy any Treasury security (including TIPS) through Treasury Direct (www.treasurydirect.gov) for NO FEE/COMMISSION.

Hi Peter-

I'm aware of treasury direct. I hold the bonds in a rollover IRA, and so far as I know Treasury Direct does not offer IRA accounts. Also, I just checked the Fidelity website and confirmed that wzd is correct: the fee for a treasury auction purchase at Fidelity is now $19.95 from a representative or free for online purchases.

Free sounds better. 8)

Richard Poole

[charlie]

Richard, I would appreciate a link to the corporate
"inflation protected internotes" if you have one
handy. Thanks for the tip.

Cheers,

Charlie

Richard, I would appreciate a link to the corporate
"inflation protected internotes" *if you have one
handy. *Thanks for the tip.

Cheers,

Charlie

Here it is: http://www.internotes.com/exports/wk...klyUpdate.html

[wzd]

Has anyone looked at CDIP's? A very long winded disclosure statement, but I think they mimic TIP's.

http://www.lasallecdips.com/Default.asp

"Has anyone looked at CDIP's? *A very long winded disclosure statement, but I think they mimic TIP's."

http://www.lasallecdips.com/Default.asp

I think they are another interesting option, but I haven't looked at them in depth. I note that they are structured like TIPS, with the inflation adjustment applied to the base, rather than Internotes, where the inflation premium is paid out with coupon payments monthly. My math skills are insufficient to compare the two directly, but the Internotes clearly will pay out more, and return only the principal invested at the end - perhaps an advantage to those who need income.

Also, I note that the CDIP's carry FDIC insurance. It would be nice to see some more issuers jump into this market. More competition, please!

RP

[charlie]

Richard & wzd, thank you for the info.

I wonder if the fixed rate on CDIPS would be higher
than comparable maturity TIPS. If so, the FDIC
feature might make them an attractive alternative.
in sheltered accounts.

Cheers,

Charlie

[charlie]

It took me awhile but I called Vanguard and inquired
about "CDIPS" at their bond desk.

As a quick review, CDIPS are CD's structured like
TIPS ........ they pay a fixed coupon plus CPI.
The value of the CD compounds at the CPI rate
while the fixed coupon is paid out to the buyer
on the inflation adjusted value of the CD. CDIPS
are insured under the FDIC with a $100,000
limit of principal and interest.

Vanguard did not find any new issues but they
found 2 issues from the Standard Federal Bank
selling on the secondary market. Both were very
similar in that they mature in November of 2013,
sell at 101.6 with a coupon of 2.4%. Both pay
semi-annually.

This seems attractive to me compared to TIPS of
similar maturity.

Bob_Smith or Wab .... am I missing something here?
I would appreciate some comments on this.

Cheers,

Charlie

[charlie]

I am bringing this thread to the surface again in the
hope that somebody will comment on the CDIP
post above. Has anybody had any experience with
these? Are there any pitfalls?

Thanks,

Charlie

Yeah Charlie, I want to know more about CDIPs also.
Come on posters, we are craving knowledge here

JG

[Bob_Smith]

Charlie, I also would like to know more about them. I have some intermediate term money looking for a home, and this might be the way to go.

[charlie]

Bob_Smith, since you recently bought TIPS from VG
maybe you would know the right questions to ask
to see if CDIPs are a good deal. At 2.4% coupon
they almost seem too good to be true. I am not
a savvy bond buyer, but I think TIPS of the same
maturity only have about 1.25% real yield. Vanguard's
TIPS fund also pays about 1.20% real at the current
time for about 11 years average maturity. The only
negative I see so far is that in case of default it might
be a big hassle to get your FDIC refund. Also, it you
need to sell before maturity you might take a beating.

Cheers,

Charlie

[Bob_Smith]

Charlie, I thought the same thing - 2.4% seems out of whack (although the premium would lower that to roughly 2.2% YTM vs. ~1.5% for TIPS maturing in 9 years) - but still... I'm wondering if there's a catch. *They appear to be almost identical to TIPS except for the items you mentioned, and the fact that the interest isn't exempt from state & local taxes like TIPS. I have already posted some questions to the bond desk at Vanguard. I'll let you know what they say. And maybe our resident bond trader, Brewer12345, will notice this thread.