I would give it up for a fixed rate of..........

[RockOn]

I'm wondering what others think about this. I've been watching/investing and trading in markets for 30 years. I have come to believe there is such a thing as a sufficient fixed rate if it is "reasonably" locked in for 20 or 30 years. How about you?

I'd say 6% (nominal) would be tempting, 7% even better, what would be yours?

What is the best available right now? Maybe 4.5% in a fixed annuity or 30 yr treasury?

 

[samclem]

I'd be very reluctant to put a big chunk of funds into any investment that is totally unresponsive to inflation. That's one of the advantages of equities--they tend to keep up with inflation unless it becomes so severe as to be disruptive to the conduct of business.

I would not have felt good about having a 20-year 6% APR fixed rate investment in 1979, when US inflation was over 12%. That situation could (easily) happen again.

 

[Nords]

I'd say 6% (nominal) would be tempting, 7% even better, what would be yours?
What is the best available right now? Maybe 4.5% in a fixed annuity or 30 yr treasury?

And what currency would that be in? American dollars, which are setting a world record for depreciation against most other currencies?

Any other "guarantee" usually involves some business promising to reinsure my risk by spreading it out among other businesses. At that rate I might as well cut out all the middlemen and just buy stock in Berkshire Hathaway.

Thanks, but I'll stick with dividends and the small-cap value premium.

 

[RockOn]

"I'd be very reluctant to put a big chunk of funds into any investment that is totally unresponsive to inflation."

"Thanks, but I'll stick with dividends and the small-cap value premium."

Good answers but there must be some rate that would flip that switch. None at all?

P.S. I believe it is Bernstein (among some others) who says the return one should reasonably expect from bonds is 6% and 6.5% in stocks over the next 10 years or so. How can that be reconciled with not being willing to take a 6% pretty sure thing?

 

[retire@40]

I would be really tempted to sign in on 7.5%.

I would definitely lock in at 8%.

Maybe you should do a poll.

 

[RockOn]

I could do a poll but the feedback is better this way I think. It was very informative for me to see the word "definitely" in your response.

 

[CyclingInvestor]

It would take a least 15% to lure me to put 1/2 of my money into it.
The other half would be tougher - maybe 18%. This is for US Treasury
quality bonds.

I guess that explains why I stay 100% in equities.

 

[Running_Man]

If anyone had taken up the US governments offer in 1981 of 14 percent interest in 1981 for 30 year treasuries I think they would have done just fine. For several years you could have bought zero coupon 30 year treasuries with 12 percent interest which in 30 years would return $32,000 for every thousand dollars invested. As the historical return on stocks is around 10 percent I'd take my chances on a 12 percent yield.


The dollar is depreciating because the Federal Reserve has decided for now the US banks are more important than the US dollar and have decided to inflate the banks problems away. No country will remain a power if they are unable to control their currency. To expect a world superpower to permanatly abandon it's currency is not very likely to occur. In order to stop the dollar decline the Fed may have to increase interest rates, A high interest rate would signal the Fed was attempting to strenously trying to get a serious problem under control as it did in 1981 not the opposite. At 12-14 percent on 30 year treasuries I would be willing to put a very large percentage into 30 year bonds probably 70-75 percent of my portfolio.

 

[RockOn]

It would take a least 15% to lure me to put 1/2 of my money into it.
The other half would be tougher - maybe 18%. This is for US Treasury
quality bonds.

I guess that explains why I stay 100% in equities.

WOW!, now that's almost too much information about your style. Thanks for the response.

 

[haha]

It would take a least 15% to lure me to put 1/2 of my money into it.
The other half would be tougher - maybe 18%. This is for US Treasury
quality bonds.

My sentiments exactly. If rates reached 14-16%, and the world looked like it did the last time it happened, I would do what I did then- but on steroids. I'd get some zeros. My brother and Dad did this last time, and set themselves for life.

But that presupposes a hero like Big Paul on deck. With our current Fraud at the Fed, although I might bet with options or whatever, no way would I actually lock.

Ha

 

[jIMOh]

7.5% for sure- if I could get 7.5% guaranteed, I would do it. 7% and 6.5% would be tempting, but if 6%=no risk and 9%=risk of current market, I would go with the market.

 

[mjarzoms]

Stagflation here we come

Well the fed is stuck in a bind now. Lower rates and watch inflation and the dollar roar out of control.

Here is a good summary by Professor Roubini of the mess we are in:

 

[Shabber2]

8% or more Definitely

And the question is very viable. Sounds like one I would ask. Anyone designing their portfolio properly should have an idea what return they are hoping for long term. Basically, the question is "what is that expectation".

 

[OAG]

Somewhat depends of age (or at least it should, since we will not live forever) I would think. If one is 45 I can see the need to hedge against inflation but at 65-70 I would think inflation is a lesser problem (here we go). Personally 6% is fine although I am at only about 5.8% currently. Additionally, as has been pointed out a lot on this board, Retired Pay (COLA'd), SS and to some extent cash payment annuities (non-variable) which both Retired pay and SS are exactly that, are a significant factor in ones willingness to take risks. So IT DEPENDS again.

 

[megacorp-firee]

Around the 7% mark would do it for me. My ss show I'm a kazillionaire if I could guarentee (a word i do not use when I dealing with financials) that amount. Everything over that would be gravy.

 

[W2R]

It depends on how much we are talking about investing. But CyclingInvestor mentioned half, as an example.

It would take around 16% for me to invest half in something with the safety of treasuries. I would take that 16% income each year and invest all but 4% of it in the market, so that wouldn't remain half of my assets for long.

A question like this is difficult to answer in a time of changing interest rates and possible increases in inflation, when you are proposing no COLA. It is as though you would like for us to gamble on the CPI. I am 617 days short of retirement, so gambling with half my money is not very appealing to me this morning. That's probably obvious.

 

[Rich_by_the_Bay]

I think Nords got it: so many outside factors can act on a fixed return over that long a period that flexible strategies seem less risky even at a slightly lower net return.

I might look hard at TIPs that paid 8% plus core inflation, though.

 

[FinanceDude]

You guys all crack me up.........

 

[W2R]

You guys all crack me up.........

Hey, TIPS at 8% plus core inflation sound great to me, too!

It's the missing "core inflation" in the OP's proposed scenario that is a problem for me if we are talking about 50% of my assets!

 

[audreyh1]

I'm sorry, but if I could get a fixed rate of X% "risk free", then I KNOW that it won't keep up with inflation. That's just how the finance world works!

Not willing to lock myself up for any type of "guarantee".
(OK, well maybe when I'm in my 80s with life expectancy < 20 years. Might then be willing to buy an annuity for income instead of managing my own money. We'll see).

Audrey

 

[FinanceDude]

I know a few folks who "pine" for the high CD rate days of the early 1980's. There were banks around here offering 13% CD's for 10 years, some even higher on shorter CD's

Of course, unemployment was around 9%, gas prices were high for the time, a 16-17% mortgage rate was normal, and car loans were 18-22%, but HEY, I'm getting DOUBLE digits on my CD's!!!

It's all relative...........all I know is folks who put a large portion of their money in CD's are facing huge purchasing power erosion over time.........but at least it's "safe".............

 

[W2R]

It's all relative...........all I know is folks who put a large portion of their money in CD's are facing huge purchasing power erosion over time.........but at least it's "safe".............

Depends on the length of the CD. The OP is talking about THIRTY YEARS... It would take one heck of a big CD rate for me to invest half my portfolio in a 30 year CD.

On the other hand, it wouldn't take anywhere near as high an interest rate to persuade me to invest in a 5- or 7- year CD, for example.

 

[kombat]

10%.

All my calculations are based on a "pessimistic" return of 8%, and an "optimistic" return of 10%. So if I could get a guarantee of my optimistic rate, I know I'd be on easy street, and I'd take it in a heartbeat.

 

[retire@40]

10%.

All my calculations are based on a "pessimistic" return of 8%, and an "optimistic" return of 10%. So if I could get a guarantee of my optimistic rate, I know I'd be on easy street, and I'd take it in a heartbeat.

8% is your pessimistic rate of return

That's my optimistic rate of return.

 

[Art G]

You all do know that the historical average for the stock market is around 10.8%, right? So to even have to THINK about "settling" for 10% is just plain nutty. Give me a 10% guaranteed fixed rate and I'll take my chances. My money doubling every 7.2 years! Yeah baby!
BTW, I recall when short term muni bonds were paying 16% and long term muni bonds were paying 15%. People were saying how crazy it would be to go long term, when you could get such great short term rates. Of course, those who locked in on those long term rates were quite happy. Of course, I'm sure at that time, there were people saying that they'd have to get 21% guaranteed to lock in.
Of course the funniest thing of all, is if I mentioned that I could get you 7% locked in for life, you'd balk at it?