Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-01-2008, 08:32 PM   #201
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Talk of SPIAs, dumping it all into CDs--dang, everyone is running for the doors. Anyone remember when inflation was 10% in the US? And, that's mild by worldwide standards--rates much higher than that can happen here, and a lengthy stretch if inflation is a likely occurrance if you've got a 30-40 year investment horizon. I would not like to have all my $$ tied up at a fixed rate in such an environment.

Pick you asset mix, rebalance when needed, take deep breaths. Repeat the mantra: "I will not sell at the bottom, I will stay true to my allocation"
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
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!

Old 07-01-2008, 08:49 PM   #202
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by samclem View Post
Talk of SPIAs, dumping it all into CDs--dang, everyone is running for the doors. Anyone remember when inflation was 10% in the US? And, that's mild by worldwide standards--rates much higher than that can happen here, and a lengthy stretch if inflation is a likely occurrance if you've got a 30-40 year investment horizon. I would not like to have all my $$ tied up at a fixed rate in such an environment.

Pick you asset mix, rebalance when needed, take deep breaths. Repeat the mantra: "I will not sell at the bottom, I will stay true to my allocation"
Inflation wasn't really 10% in the 70's, at least that's what I hear most saying. The BLS didn't know what they were doing back then. That seems to be consensus thinking. I have yet to read a serious article disputing the numbers John Williams is reporting on that fact.

I'm not against your mantra, it's just not my risk tolerance.
__________________

__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 09:02 PM   #203
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 7,434
Quote:
Originally Posted by RockOn View Post
I hate to do this to you, but we think very similar.
I hate to do this to you, but most on here probably think I'm a nut.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 07-01-2008, 09:06 PM   #204
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by RockOn View Post
I hate to do this to you, but we think very similar. I'd like to see more discussions about how to get a pretty safe and fairly steady 5 or 6 or 7%. Investing in overpriced (as I see it) risky assets doesn't do it for me. I suspect there are more than the two of us out here.

I don't really like the whole concept of an insurance annuity but it is one of the only ways I currently see to get close to meeting the goal of a pretty safe and steady 5 or 6%. I'm not really ready to pull the plug on one, but I might in a few years.
Given that risk and reward are tighly bound to one another where do you anticipate finding such an investment?

DD
__________________
DblDoc is offline   Reply With Quote
Old 07-01-2008, 09:22 PM   #205
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Here are some data from almost a half century of inflation figures from a few other industrialized countries. Maybe their respective inflation stats are off, too.

Inflation happens periodically. I wouldn't want to have a 5% SPIA when we have a bout like the UK had from 1972 - 1982. Locked in at annual real losses of 5-15% for a decade. Nope, I wouldn't be sleeping well.

In which one of those countries would a 5% CD or SPIA have been a good deal?

Uncertainty and volatility comes from many more places than the stock market.


__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 07-01-2008, 09:31 PM   #206
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 7,434
Quote:
Originally Posted by samclem View Post
Here are some data from almost a half century of inflation figures from a few other industrialized countries. Maybe their respective inflation stats are off, too.

Inflation happens periodically. I wouldn't want to have a 5% SPIA when we have a bout like the UK had from 1972 - 1982. Locked in at annual real losses of 5-15% for a decade. Nope, I wouldn't be sleeping well.

In which one of those countries would a 5% CD or SPIA have been a good deal?

Uncertainty and volatility comes from many more places than the stock market.


Well during the late 70's and early 80's CD rates were double digits. Can't say what they were in the 50's and 60's. Also wasn't the stock market basically flat from the late 60's to the early 80's? Doesn't look like stocks were that good of a hedge against inflation during that time frame.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 07-01-2008, 09:37 PM   #207
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by DblDoc View Post
Given that risk and reward are tighly bound to one another where do you anticipate finding such an investment?

DD
I gave you one idea, a SPIA, that is pretty simple. 2B has mentioned preferred stocks. There are many more places to look for 5, 6, or 7% with less risk and less potential upside than a 60/40 portfolio.

Maybe covered call options funds, some lower risk hedge funds, valuation based timing funds like the the Hussman Funds, high yield bond funds (if bought when undervalued), REITS, MLP's .......

Not to say they all are good ideas, but some of these ideas work for people looking for less risk.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 09:51 PM   #208
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by samclem View Post
Here are some data from almost a half century of inflation figures from a few other industrialized countries. Maybe their respective inflation stats are off, too.

Inflation happens periodically. I wouldn't want to have a 5% SPIA when we have a bout like the UK had from 1972 - 1982. Locked in at annual real losses of 5-15% for a decade. Nope, I wouldn't be sleeping well.

In which one of those countries would a 5% CD or SPIA have been a good deal?

Uncertainty and volatility comes from many more places than the stock market.
There are plenty of discussions about the validity of inflation numbers. I think we should just accept that the average inflation number of around 3% a year for the last 100 years is valid, just like many want to accept that a 10.2% average return is expected from stocks based on the last 100 years. At 3% inflation a SPIA still looks pretty good.

IMHO at least when betting on inflation staying at 3% one is not taking on as much risk as betting that (overvalued) stocks selling at PE's of 23 will not lose possibly 40% and revert to the mean sometime in the next 10 years.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 10:00 PM   #209
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,382
Quote:
Originally Posted by RockOn View Post
IMHO at least when betting on inflation staying at 3% one is not taking on as much risk as betting that stocks selling at PE's of 23 will not lose around 40% and revert to the mean sometime in the next 10 years.
You don't have to take either risk, since inflation adjusted SPIAs do exist.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 07-01-2008, 10:01 PM   #210
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 59
SPIA's spook me due to having so much money tied up in one insurance company basket. My perspective is skewed by my entering the financial business world right after Executive Life imploded and it was A+ rated right up to the day it closed it's doors.A diversified portfolio remains your best bet to solid returns. That said, this market feels a little different from other squishy markets I have experienced.
__________________
huskerblue is offline   Reply With Quote
Old 07-01-2008, 10:04 PM   #211
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by haha View Post
You don't have to take either risk, since inflation adjusted SPIAs do exist.

Ha
Good point, many seem to forget that. I would buy some inflation protection or hold some money back to buy another to increase my income as I age, if I made the leap to a SPIA.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 10:07 PM   #212
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Whowser! No wonder the Brit engineers I worked with in the 70's and 80's were talking annuities - SWISS of course.

heh heh heh - provincial American me - that's about the time I started DCA via 401k into the then new 500 Index.

Ya gotta have faith baby. I don't think I even noticed the 'Stocks Are Dead' article back then.

heh heh heh - So far my non cola pension, SS and dividends on my small amount of Norwegian widow stocks are sufficient for a 'hard times' cash flow. With time and inflation never say never on annuities - but not now or yet even.
__________________
unclemick is offline   Reply With Quote
Old 07-01-2008, 10:08 PM   #213
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by huskerblue View Post
SPIA's spook me due to having so much money tied up in one insurance company basket. My perspective is skewed by my entering the financial business world right after Executive Life imploded and it was A+ rated right up to the day it closed it's doors.A diversified portfolio remains your best bet to solid returns. That said, this market feels a little different from other squishy markets I have experienced.
I don't really want to be sounding like I am pushing annuities, because it is only one of many options and I could care less about insurance companies or their products..... but even in the drastic Executive Life case, every annuity was made whole from what others have said, unlike Enron stock holders.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 10:34 PM   #214
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by Dawg52 View Post
Well during the late 70's and early 80's CD rates were double digits. Can't say what they were in the 50's and 60's. Also wasn't the stock market basically flat from the late 60's to the early 80's? Doesn't look like stocks were that good of a hedge against inflation during that time frame.
True-though if you'd locked into a fixed annuity in 1965 there would have been no opportunity to get those higher rates. At least as far as I can tell, there's no single vehicle (including giving all of one's money to an insurance company) that protects against all eventualities. I've got a long time horizon, and I feel a lot safer with a mix of assets and no dependency on one industry, one national economy, and especially not a single company.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 07-01-2008, 10:37 PM   #215
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by RockOn View Post
I gave you one idea, a SPIA, that is pretty simple. 2B has mentioned preferred stocks. There are many more places to look for 5, 6, or 7% with less risk and less potential upside than a 60/40 portfolio.

Maybe covered call options funds, some lower risk hedge funds, valuation based timing funds like the the Hussman Funds, high yield bond funds (if bought when undervalued), REITS, MLP's .......

Not to say they all are good ideas, but some of these ideas work for people looking for less risk.
If any of these were to provide "value" in terms of risk:reward why wouldn't all the smart money flow into them? I would grant you that some will provide a hedge against certain risks but over the long haul I will place my faith in a diversified portfolio of index MF's and gov't bonds (including TIPS) as the most likely path to a successful retirement.

DD
__________________
DblDoc is offline   Reply With Quote
Old 07-01-2008, 10:48 PM   #216
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by DblDoc View Post
If any of these were to provide "value" in terms of risk:reward why wouldn't all the smart money flow into them? I would grant you that some will provide a hedge against certain risks but over the long haul I will place my faith in a diversified portfolio of index MF's and gov't bonds (including TIPS) as the most likely path to a successful retirement.

DD
You might be right, we just do not know for sure. If you are wrong, would you be ok?

In a diversified portfolio the expected 10year returns might have a range of 14% to -4% (just using the numbers as an illustration). In a lower risk idea the returns might be from 8% to 2%. I would be ok with a 2% return. Would you be ok with a 0% or -4% return for 10 years? IMHO that is how we see this differently.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 10:57 PM   #217
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 183
Quote:
If any of these were to provide "value" in terms of risk:reward why wouldn't all the smart money flow into them?
Good point. The fact that the smart money does not is an indication that the risk:reward is tilted in favor of the insurer, not the holder of the annuity.

Quote:
In a diversified portfolio the expected 10year returns might have a range of 14% to -4% (just using the numbers as an illustration). In a lower risk idea the returns might be from 8% to 2%. I would be ok with a 2% return. Would you be ok with a 0% or -4% return for 10 years?
Your argument falls down in the context of investing for retirement.

I am ok with 10 year returns being flat or negative, because I am not retiring in 10 years. Without volatility and losses, equities would not return more than bonds, and bonds over cash, and so on. In other words, down years or even decades are necessary - or else markets would not reward for risk and people would not invest in stocks at all.

If I were retired, I might have a 50:50 asset allocation between stocks and bonds, and the odds of suffering negative years would be much less. So much less that offering me a guaranteed 2% is laughable. How do you think the insurance companies can guarantee 2%?? It is because they are all but certain to outearn that in the market. Why not cut out the fee-sucking middleman who is prone to possible (eventual?) catastrophic failure and trust instead in capitalism?
__________________
innova is offline   Reply With Quote
Old 07-01-2008, 11:14 PM   #218
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by innova View Post
Good point. The fact that the smart money does not is an indication that the risk:reward is tilted in favor of the insurer, not the holder of the annuity.

Your argument falls down in the context of investing for retirement.

I am ok with 10 year returns being flat or negative, because I am not retiring in 10 years. Without volatility and losses, equities would not return more than bonds, and bonds over cash, and so on. In other words, down years or even decades are necessary - or else markets would not reward for risk and people would not invest in stocks at all.

If I were retired, I might have a 50:50 asset allocation between stocks and bonds, and the odds of suffering negative years would be much less. So much less that offering me a guaranteed 2% is laughable. How do you think the insurance companies can guarantee 2%?? It is because they are all but certain to outearn that in the market. Why not cut out the fee-sucking middleman who is prone to possible (eventual?) catastrophic failure and trust instead in capitalism?
To each their own. I wish you could accept other points of view. I believe investing for the long term in overvalued markets (as I see it) is very risky, you do not have to agree. We could discuss that. As I calculate it the insurance companies are offering guaranteed internal rates of return on investments of 5 or 6% for life, I do not think that is incorrect and several have confirmed those calcs. I do not think that is an unfair return. I would not want to make that guarantee to anyone myself.
__________________
RockOn is offline   Reply With Quote
Old 07-01-2008, 11:16 PM   #219
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
I'll be selfish here and say that if we had a flat or (-) market for the next 10 years I'll be overjoyed because at some point in the ensuing decade(s) all those cheap equities I'll have accumulated will pay off handsomely . Will I have to work a little longer, possibly.

If I'm wrong then there will be a large portion of the baby boom eating beans and rice (or worse) with me and we will have much bigger issues then worrying about when or if to buy a SPIA, portfolio tilting and gov't fudging of inflation numbers.

Remember: "This time it's different" are the 4 most expensive words in the English language - for bubbles and bears...

DD
__________________
DblDoc is offline   Reply With Quote
Old 07-01-2008, 11:22 PM   #220
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by DblDoc View Post
I'll be selfish here and say that if we had a flat or (-) market for the next 10 years I'll be overjoyed because at some point in the ensuing decade(s) all those cheap equities I'll have accumulated will pay off handsomely . Will I have to work a little longer, possibly.

If I'm wrong then there will be a large portion of the baby boom eating beans and rice (or worse) with me and we will have much bigger issues then worrying about when or if to buy a SPIA, portfolio tilting and gov't fudging of inflation numbers.

Remember: "This time it's different" are the 4 most expensive words in the English language - for bubbles and bears...

DD
Good points! In your case and if you could really stick with buying in and losing money (or not making any) for that long, you'll likely do fine. If newly retired I think you might be in trouble though.
__________________

__________________
RockOn is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
52 and ready to jump, give me a push! Shafer239 Hi, I am... 17 06-28-2008 11:32 AM
Panic of 08? FinallyRetired FIRE and Money 79 03-20-2008 01:25 PM
ugh, this is just wonderful. newguy88 Other topics 1 02-09-2008 03:24 AM
Will There Be Panic In The Markets? Retire Soon FIRE and Money 148 01-25-2008 07:17 AM
UGH applied for Health Insurance and now an INJURY wallygator69 Health and Early Retirement 6 12-29-2007 11:07 PM

 

 
All times are GMT -6. The time now is 04:18 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.