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Old 12-23-2009, 11:16 AM   #41
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I mis-spoke...what I meant to say is that if you hold a bond to maturity, you are guaranteed the face value (unless the issuer defaults), so there is no price risk associated with changes in interest rates...right?

I thought they called that interest rate risk, but perhaps I should have called it "price" risk?
Here is the problem: retail investors frequently fall into the fallacy that as long as they (eventually) get their nominal face amount back, its all good. In fact, this ignores the damage that inflation does to your nest egg. Being in a situation in 10 years where teh value of your investments is badly eroded by inflation to the point where you no longer have enough money is not a happy think. So I usually try to discourage people from falling into the mental trap of thinking that holding to maturity solves the problem and deals with the risk (it does not).

As for your proposed portfolio allocation, what does "long term" mean? I would strongly suggest that you stay under 10 years in maturity, and shorter than that if he can tolerate the yield. Not worth the risk to go out on the yield curve, especially at such low rates.
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Old 12-23-2009, 12:24 PM   #42
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Thanks brewer. No worries about the inflation risk, I understand that...which is why I mentioned that we want to keep a portion of his portfolio in equities and maybe TIPS.

As for long-term..he's in his mid '70s...so he'll need this setup to last 10-15 years depending on longevity. You make a good point though...if we put him in a 30 year bond, and he dies in 10 years, we may have to liquidate when prices have moved...at a price we may not want to accept.

I just hate the fact that shorter maturities pay so darn little...I suppose we cross our fingers that we can reinvest at higher rates in a few years.
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Old 12-26-2009, 06:40 AM   #43
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We are still in a 30 year bull market in bonds which may influence decisions on setting up a portfolio. However prior to that from about 1946 to 1981 there was a 35 year bear market when some bonds showed substantial capital losses and presumably an all-bond portfolio should take this into account. I have yet to find a good analysis of a recommended strategy to follow for a bond heavy portfolio that might allow for the possibility of a bond bear market of similar magnitude reoccurring. I assume it's probably TIPS; short term bonds and a small proportion of equity-like inflation assets but I'm not sure how that would have performed over the 1946/81 period or similar worst-case scenarios.
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Old 01-05-2010, 10:08 AM   #44
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I see we have another annuity/insurance sales professional on board. Welcome to the forum, John.
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Old 01-05-2010, 10:16 AM   #45
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As a retiree who owns a index annuity and a fixed annuity in combination with other investment accounts I love these products. As well, my son is a CFP who has uses all these products but focuses on invesments mainly 401k assets.

The payout on this annuity would be less than 2% on the life of the product, just so happens that they pay commission in the first year only. While most asset managers charge you 1-1.5% on an annual basis!! My only advise to choosing an annuity is to get rates from multiple carriers.. when I was shopping the market for my annuities I used an online site who helped me make a great decision annuityratesnow.com

I didn't lose 40% in my annuities when the market crashed just like the article you linked to mentioned in a post.
Given that this website has a 2010 copyright on it, it looks like you are just trying to add backlinks to your/their website for SEO purposes. Just an observation. I am sure that will get deleted soon.

I also don't know of any indexed annuities that only pay 2% commission. A fixed annuity could pay 2%, that I could believe. If they were all that low, nobody would want to sell them. It takes a lot of time and effort to gain annuity clients and 2% would not make it worthwhile.
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Old 01-05-2010, 10:56 AM   #46
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Psst. Real estate. Can't lose. Works for me, contact me and I might let you in on some of the properties I've made up to 10, 20, 60% or more on in the last several decades.

Just wanted to get in on the fun.

You all are pretty sensitive to sales - not saying you are wrong, but isn't it possible that there might be a worthwhile annuity or time for an annuity? and couldn't someone who had an annuity post a link found via a web search if they wanted to post a link?

Not that I would click on a link to see or come anywhere near a salesman for anything - they are loathsome. But really, there's never been a better time (for you, for me) to buy (my) real estate.
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Old 01-05-2010, 11:01 AM   #47
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Psst. Real estate. Can't lose. Works for me, contact me and I might let you in on some of the properties I've made up to 10, 20, 60% or more on in the last several decades.

Just wanted to get in on the fun.

You all are pretty sensitive to sales - not saying you are wrong, but isn't it possible that there might be a worthwhile annuity or time for an annuity? and couldn't someone who had an annuity post a link found via a web search if they wanted to post a link?

Not that I would click on a link to see or come anywhere near a salesman for anything - they are loathsome. But really, there's never been a better time (for you, for me) to buy (my) real estate.

Are there sme annuities that might be OK? Sure, for some situations, certain products are fine and may be the best choice. But these products are over sold, many are a ripoff, and others are so complex you would need a team of lawyers to do proper due diligence.
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Old 01-05-2010, 10:33 PM   #48
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update....

I met with my dad last week. Although we have not made any firm decisions, I did give him a couple risk tolerance quizzes, turns out he's in a moderate risk category. Still, given his age of 74, we're going to keep him pretty conservatively invested.

In looking at his "other" investments, which I had never before seen, it seems most of his portfolio was in bonds. While this seems at first glance to be "moderate" risk, many of these are junk bonds or ones that have underlying derivatives, thus quite risky. Also some of them were long-term bonds, which have moved a lot. As we all know, the S&P was down about 55% at it's worst....my dad's portfolio was down about 30%. Obviously not as bad as 100% equities, but he's losing sleep at night.

Fortunately, since March 9th, things have recovered somewhat, so he's only down about 19% now, and he's mentally ready to make a shift to safer investments.

The universe of potential products at this point is:
TIPS
laddered CDs
money markets (not funds, but accounts)
Bonds or bond funds (possibly laddered), although shorter term and higher quality than what he's in

Fortunately he's saved quite a bit, and has a low annual budget. As a result, if we can get him 4%/year, he'll be thrilled. While this may not be easy in the short-term, I think it's doable in the medium term once yields pick up a bit.

For now we wait on his 2009 tax return...and I nail down detailed funds and optimal mix of the above.

Current investments before any changes
60% bonds - his "advisor" has him in 41 different accounts (ouch)
40% cash - This is the money from the real estate sale

Future investments
Who knows...but I'm guessing something like
10% stock funds (slight bit of growth potential)
10-20% Short to intermediate term high quality bonds or bond fund
40% laddered CDs (stick with short maturities for now)
30% TIPS

Oh and lastly...he's paying his current advisor $6,000/year in management fees alone. We may pull the advisor, manage it ourselves, and thus save that amount/year.
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Old 01-06-2010, 01:14 PM   #49
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Wow, $6k a year plus probably some sort of commission. Nice.

Check out Pen Fed CDs while they are running their January special. The 5 year CD rates are pretty decent and you can always cash them in early for a 6 month interest penalty.
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Old 01-07-2010, 12:09 AM   #50
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Wow, $6k a year plus probably some sort of commission. Nice.

Check out Pen Fed CDs while they are running their January special. The 5 year CD rates are pretty decent and you can always cash them in early for a 6 month interest penalty.
$6k plus wrap fees I am sure....that's a pretty spicy meatball. I don't know how long he wants to tie up his money, but even some of the fixed annuities right now could get him 4% if he's looking at 6-10 years. Most fixed annuities have a 10% annual free withdrawal provision.
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