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Where have all your savings gone?
Old 12-07-2008, 08:37 AM   #1
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Where have all your savings gone?

I thought this was an interesting, timely read...YMMV.
Where have your savings gone? | Where have all your savings gone? | The Economist
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Old 12-07-2008, 08:51 AM   #2
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Yes, unfortunately MPT broke this year I think. Well in a sense it has been broken for a few years, it's just that you didn't notice previously because everything was going up in value.

Due to Hedgefunds and lots of hot money flowing around the globe, correlation between most asset classes is quite high. For example, a hedgie has a bet on corn and another in gold. The gold bet goes bad forcing a sell in corn to meet margin. What does corn have to do with gold? Nothing, until the hedgie got involved.
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Old 12-07-2008, 08:56 AM   #3
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" Implausible as it may sound, right now equities and corporate bonds are a better long-term bet than cash."

I have a little cash remaining that I am planning to invest (not much remaining)- so far the plan is - not written in stone:
High Yield corp bonds - now
USA investments - by the end of the year - lowering the avg cost basis
Outside USA - when the Dollar spikes up
Commodities - next year sometime - might be when the dollar spikes up also.

It isn't easy to do this. I keep repeating - it will be up in the long term (I know, I know, we are all dead in the long term.)

Those still working should definitely still be investing.
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Old 12-07-2008, 09:50 AM   #4
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Those still working should definitely still be investing.
... and plan to stay working for a few more years.
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Old 12-07-2008, 10:01 AM   #5
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A rule of thumb is that total contributions need to be around 20% of wages to match a traditional final-salary scheme.
In the past, public pensions only require a contribution rate of much less than 20%. How does the government afford to pay pension benefits?
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Old 12-07-2008, 10:04 AM   #6
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" Implausible as it may sound, right now equities and corporate bonds are a better long-term bet than cash."
This, to me, seems unquestionably true. Equities are harder to judge than bonds because forward earnings are hugely uncertain. But high quality corporates are currently pricing in default rates exceeding those seen during the great depression. Even a class of corporate bond that rarely ever defaults and has always paid 100% of par plus accrued in default (i.e. electric utility first mortgage bonds) can be found at "junk" spreads of 400bp-600bp over treasuries. This is a gift for anyone with cash. Some high yield corporates and commercial mortgage backed securities are offering similarly outrages yields. These extreme bargains in the credit markets make me think equities will also prove to be trading at very cheap levels.
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Old 12-07-2008, 10:22 AM   #7
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Right now I am buying mostly US equities and corporate bonds (via VG Wellington + VG Wellesley + NAESX) with some smaller bets on munis, TIPS and REITs.

I have started nibbling on commodities and foreign equities as well.

Less than 4% of my porfolio is now in cash.
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Old 12-07-2008, 10:36 AM   #8
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This is a gift for anyone with cash.
Yes, if and only if one has a plenty of it.
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Old 12-07-2008, 11:44 AM   #9
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Yes, if and only if one has a plenty of it.
Does my 50% cash count as "plenty"?

Why am I afraid of parting with it?

I hope to be envious of FireDreamer and Haha. No guts, no glory. No doomer here, but I let others lead the charge. I'll be right behind them. Sometimes next year, will go back to my usual 70% equity AA.
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Old 12-07-2008, 12:44 PM   #10
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In the past, public pensions only require a contribution rate of much less than 20%. How does the government afford to pay pension benefits?
Plans are not created the same. My former employer does not actually pay pension benefits, but makes contributions into an independent pension fund that is administered by an elected board of trustees. The rates are now 10.25% contribution from employees and 16% from the city. I know that the city is currently contributing more because they did not make the agreed upon contributions for a number of years, but I'm not sure if the 16% will be what is agreed upon in the long term or not. So, total contributions between employee and employer is 26.25%.
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Old 12-07-2008, 12:46 PM   #11
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I hope to be envious of FireDreamer and Haha.
Maybe we'll be envious of you!
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Old 12-07-2008, 01:28 PM   #12
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I thought this was an interesting, timely read...YMMV.
I enjoy reading the Economist but I don't have the stamina to keep up with it every week.

This article sounds like a confirmation of the "buy high, sell low" Dalbar study. The idea of higher consumer spending, however, may solve short-term symptoms while exacerbating long-term ones.

I think the biggest problem with the current market situation is investor psychology. Many investors are sitting on piles of cash that would last for years yet we feel compelled to take action to resolve situations that are years away, if they ever occur at all. We're also peering at the daily markets with a microscope and trying to make plans that should only be viewed through a telescope.
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Old 12-07-2008, 01:39 PM   #13
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I think the biggest problem with the current market situation is investor psychology. Many investors are sitting on piles of cash that would last for years yet we feel compelled to take action to resolve situations that are years away, if they ever occur at all.
Jobs are the currency of consumer confidence. When people see massive job losses they lose confidence that theirs will be safe too, and they hoard cash. This, of course, secures their individual financial futures but when a critical mass of people start doing this, the reduced economic activity just leads to more job losses and even more "defensive" hoarding of cash.

Rinse, lather, repeat, until some how economic events manage to break out of that vicious circle.
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Old 12-07-2008, 03:17 PM   #14
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Maybe we'll be envious of you!
I like your attitude. Life is full of uncertainties. Do what you can feel most comfortable with. Then, spend time to dream of your next vacation destination, or think of how to make that fideua better the next time.

Uncle Mick got it all figured out. heh heh heh...

PS. I still have not bought Wellesley yet. heh heh heh
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Old 12-07-2008, 05:01 PM   #15
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I like your attitude. Life is full of uncertainties. Do what you can feel most comfortable with. Then, spend time to dream of your next vacation destination, or think of how to make that fideua better the next time.

Uncle Mick got it all figured out. heh heh heh...

PS. I still have not bought Wellesley yet. heh heh heh
Yes, life is indeed full of uncertainties, but as the French say... c'est la vie mon ami! You have to live your life and stop worrying about things you can't control. Come to think of it, it's a bit like Bogle's investment strategy: set an appropriate AA (risk), minimize your fees and taxes and then... go do something more interesting.
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Old 12-07-2008, 05:07 PM   #16
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where have all your savings gone
"Gone to graveyards, everyone. When will they ever learn, when will they ever learn"

With apologies to Bob Dylan.
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Old 12-07-2008, 05:22 PM   #17
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In the past, public pensions only require a contribution rate of much less than 20%. How does the government afford to pay pension benefits?
Surely you know the answer to this question?
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Old 12-07-2008, 07:26 PM   #18
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In the past, public pensions only require a contribution rate of much less than 20%. How does the government afford to pay pension benefits?

It does amaze me . My late husband's contributions to his government pension was $36,000 for that he would have collected $33,500 cola for life . I worked twenty years for a hospital in new Jersey and for that I got a lump sum of $60,000.
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Old 12-07-2008, 07:36 PM   #19
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"Gone to graveyards, everyone. When will they ever learn, when will they ever learn"

With apologies to Bob Dylan.
From which, flowers will bloom.

I always like the Kingston Trio rendition of this song. I did not know Bob Dylan also sang it.
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Old 12-07-2008, 09:01 PM   #20
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From which, flowers will bloom.

I always like the Kingston Trio rendition of this song. I did not know Bob Dylan also sang it.
Peter, Paul & Mary; and Chad Mitchell Trio also did good versions.
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