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Old 12-13-2010, 06:16 PM   #21
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Mainly, there's just no one size fits all investment that always safe and has a high return. If there was, wouldn't we all just do that? That would be too easy .
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Old 12-13-2010, 07:44 PM   #22
Recycles dryer sheets
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Originally Posted by haha View Post
Intersting hypothesis, but in the last bigtime inflation that we experienced in the USA(1970s), money market funds and t-bills fared much better than either stocks or bonds.

Ha
I'm going from memory here, but if I remember correctly money market funds were created, or at least became popular, because inflation was exceeding what banks were ALLOWED to pay. Their vulnerability is that the Fed has a very very strong influence on interest rates at that end of the market. Which makes for horrible days like now when the Fed wants to stimulate the economy, but wonderful days when the Fed is raising rates to try and tame inflation.

The large cap "nifty 50" stocks definitely underperformed in the 70s after their bubble, just as large cap US stocks have underperformed since the tech bubble burst. However, I believe that small cap stocks had a great run in the 70s just as they did fairly well during the past decade.

Conventional bonds always get killed by unexpected inflation. However, they were obviously a great place to invest once the Fed raised interest rates sky high to kill inflation.

As always diversify to maximize safety.
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Old 12-13-2010, 08:42 PM   #23
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Originally Posted by bamsphd View Post
I'm going from memory here, but if I remember correctly money market funds were created, or at least became popular, because inflation was exceeding what banks were ALLOWED to pay. Their vulnerability is that the Fed has a very very strong influence on interest rates at that end of the market. Which makes for horrible days like now when the Fed wants to stimulate the economy, but wonderful days when the Fed is raising rates to try and tame inflation.

The large cap "nifty 50" stocks definitely underperformed in the 70s after their bubble, just as large cap US stocks have underperformed since the tech bubble burst. However, I believe that small cap stocks had a great run in the 70s just as they did fairly well during the past decade.

Conventional bonds always get killed by unexpected inflation. However, they were obviously a great place to invest once the Fed raised interest rates sky high to kill inflation.

As always diversify to maximize safety.
Go back and look. I was there- small cap stocks got absolutely gutted in the 73/74 downturn. Today, when we have perhaps history's worst central banker at the helm of the Fed, it is possible that results would be different from what they were back then. I really do not speak to money market funds per se, but more to short term instruments in general. I survived that period quite well in 3 month bills.

Obviously today might be different. I am just saying that whatever links there may be beween stocks and inflation rates, they are not only loose, they can operate in reverse.

This information is not hard to find, but it conflicts with industry/FA bs.

Ha
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Old 12-13-2010, 08:57 PM   #24
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3% at a credit union? i looked at local cu online and they were paying a whopping 10 basis points up to (are you sitting down?) 50 bp. ally and ing are far better than this, where are these cu?
Not sure if this question was for me but I'm currently getting 3% at 2 different CU's in alabama.
Neither are easy to become members of though.
One you have to be an employee or x employee.
The other one is basically the same but family members of an employee can get in, as I did.
Funny thing to me, I never paid much attention to either one of them until all the interest rates went south. Now I'm squeezing all the cash I have available into them.
I actually called to close one of the accounts and the clerk told me if I closed it, I would never be able to get in again, because I had retired. I said, "so what" you guys never pay good rates anyway. That's when I got the nice surprise that they were paying more than any of the banks in my area at the time.
Both CU's have managed to stay at 3% all this year to.
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Old 12-13-2010, 09:08 PM   #25
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I wondered myself how these CU's manage to pay more interest than the banks. I think it has to do with being tied to a big employer. They have a trapped audience. They make all types of loans to employees and cut the payment straight out of their pay checks. When I go in to make a deposit there is usually 3 or 4 people in the (small) office applying for loans.
The CU's probably charge 6% on the loans.
Steve
PS. Don't you guys think penfed makes a lot of loans to soldiers & government employees?
At least I would think that is where they started from. But I don't know very much about penfed, I'm a new member.
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Old 12-14-2010, 10:05 AM   #26
Recycles dryer sheets
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Originally Posted by haha View Post
Go back and look. I was there- small cap stocks got absolutely gutted in the 73/74 downturn.
Ah, we had different time scales. I was thinking longer term. I did just "go back and look, " with a quick Google search, and found this article Hussman Funds - Relative Value and Relative Returns which includes the paragraph.
Quote:
In the early 1970's, large-cap valuations were extreme relative to small-cap valuations. Both groups experienced sharp losses during the 1973-1974 bear market, but large-caps were hit harder. A portfolio of large companies fell 4.2 percent a year from 1972 through 1977. Small companies fell just 1.3 percent a year during that period. Once the bear market cleared, small companies went on to rise more than 25 percent a year, almost double the gain of large caps.
So I think we are BOTH right.
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