Money Market Risk

[ERD50]

RockOn - start a new thread - this one is about MM, not annuities. -ERD50

 

[RockOn]

Ok, good point, I'm sorry

Move on

 

[cute fuzzy bunny]

Saying I am doing it wrong or using the wrong methods doesn't change the fact that I can show you that annuities have the same investment outcome as any other 6% annualized investment.

I would think that demonstrating that you're using the wrong methodology to produce a comparison, and giving you a handful of links to well respected financial documents confirming that assertion would somewhat change the 'facts'.

Internal rate of return is a poor measure of an investment. Most non-lazy financial people use NPV to compare similar proposed capital investment projects.

IRR has no facility to handle reinvestments in a 'project'.

It is not applicable to apply a rate of return produced by an IRR calculation to unrelated and dissimilar investments.

Annuity sales people like to use IRR because it produces juicy numbers that sound better than they are.

The actual return for most people from an annuity will be around or about and usually less than 4%. Worse when you factor in the loss of principal.

You may not do an IRR unless you have an exact duration. Guessing at an 'end' of 86 is speculation, and in defiance of the well accepted mortality tables that say you'll be dead in the 81-82 range.

My issue with this is that at best you are poorly informed and dont listen very well. At worst, you're just banging on this drum to amuse youself.

Either way, I dont find the pollution appreciable. Far too much noise and not enough signal.

When Nords refused to stop you from insulting me

Perhaps you could explain why Nords would have anything to do with what I do or dont say although I do respect his opinion. And for the record I never insulted you. I made a general comment about idiots and you decided that it applied to you and you went off like a roman candle.

Do continue with your "entertainment" in your own thread. Let me know how that works out for you.

 

[RockOn]

I would think that demonstrating that you're using the wrong methodology to produce a comparison, and giving you a handful of links to well respected financial documents confirming that assertion would somewhat change the 'facts'.

Internal rate of return is a poor measure of an investment. Most non-lazy financial people use NPV to compare similar proposed capital investment projects.

IRR has no facility to handle reinvestments in a 'project'.

It is not applicable to apply a rate of return produced by an IRR calculation to unrelated and dissimilar investments.

Annuity sales people like to use IRR because it produces juicy numbers that sound better than they are.

The actual return for most people from an annuity will be around or about and usually less than 4%. Worse when you factor in the loss of principal.

You may not do an IRR unless you have an exact duration. Guessing at an 'end' of 86 is speculation, and in defiance of the well accepted mortality tables that say you'll be dead in the 81-82 range.

My issue with this is that at best you are poorly informed and dont listen very well. At worst, you're just banging on this drum to amuse youself.

Either way, I dont find the pollution appreciable. Far too much noise and not enough signal.



Perhaps you could explain why Nords would have anything to do with what I do or dont say although I do respect his opinion. And for the record I never insulted you. I made a general comment about idiots and you decided that it applied to you and you went off like a roman candle.

Do continue with your "entertainment" in your own thread. Let me know how that works out for you.

I won't continue here, please move these comments to the other thread and I'll respond to your points

 

[cute fuzzy bunny]

Yeah, well you head on over there chief and I'll be there directly to debate you further.

 

[RockOn]

Meaning? I'd like to sign off if you don't want to work through this tonight. If you want to go on I'll give you a fair chance to show me where I'm wrong if you'll allow me to do the same.

 

[Marquette]

Nobody is responding to you because a lot of people put you on ignore yesterday when your head spontaneously exploded.

Or months ago. Man, I hate being trendy.

Awhile back Nords admitted I was correct on the 6% calculation, now he allows you to once again bash me about it. Hard for me to understand. In any case, I shouldn't have gone all out in my response.

You're probably not aware, but Nords is neither a moderator nor is he CFB's grouchy older brother (nor yours for that matter). As such, Nords no more allows CFB to do or not do something than he allows the wind to blow.

One should compare IRR and NPV of an annuity against, for example, the Vanguard Payout Distribution Focus fund (VPDFX... 7.5% payout based on current share price).

I'm not interested in annuities simply based on carrier longevity... and that's not including the staff all dying off from legionnaires disease: Fears for workers at office as pair get legionnaires' disease - Latest News, Health - Independent.ie

 

[RockOn]

Or months ago. Man, I hate being trendy.



You're probably not aware, but Nords is neither a moderator nor is he CFB's grouchy older brother (nor yours for that matter). As such, Nords no more allows CFB to do or not do something than he allows the wind to blow.

One should compare IRR and NPV of an annuity against, for example, the Vanguard Payout Distribution Focus fund (VPDFX... 7.5% payout based on current share price).

I'm not interested in annuities simply based on carrier longevity... and that's not including the staff all dying off from legionnaires disease: Fears for workers at office as pair get legionnaires' disease - Latest News, Health - Independent.ie

On the ignore list, open-minded are we not?

Nords got on me, acting like he was a mod, for breaking a minor rule awhile ago, I thought he was a mod. He seemed to hold himself up as such, sorry for not knowing that. He is listed as "Moderator Emeritus".

I don't agree on what you can compare an annuity to, it can be compared to "any" investment, not just your selected fund. I don't know where you get that idea from. We could have a discussion about that if I wasn't being ignored.

On your last point, that is a good one.

 

[Marquette]

On the ignore list, open-minded are we not?

Obviously, since I'm typing here, one can still view posts of those on their ignore list. However, it does cut down on the chaff while reading.

Nords got on me, acting like he was a mod, for breaking a minor rule awhile ago, I thought he was a mod. He seemed to hold himself up as such, sorry for not knowing that. He is listed as "Moderator Emeritus".

And surely you know what emeritus means?

I don't agree on what you can compare an annuity to, it can be compared to "any" investment, not just your selected fund. I don't know where you get that idea from. We could have a discussion about that if I wasn't being ignored.

Well, feel free to compare away. What's the NPV and IRR of whatever annuity mix you choose with whichever riders you like? How does it compare to whichever other funds you'd like to compare it to? Feel free to start a new thread on the subject, I believe it's been suggested to pursue that a few times. Or, dig up one of the other annuity thread and start the discussion there.

I'm only suggesting that including a fund such as the managed payout funds would be a fair comparison. As opposed, for instance, to hatian penny stocks.

My only contribution is that I know what the inside of an annuity company looks like and I wouldn't trust one with my money over what I reasonably expect my investment horizon to be... and I'd get a better deal on an annuity than just about anyone here. You can discount that as familiarity bias, though.

 

[ERD50]

Does this mean there is *no* money market risk?

-ERD50

 

[Marquette]

There's no money market risk if you're MM is in an annuity. Otherwise there is some risk if the surf is too flat for Nords to be out. One contrarian indicator is if REWahoo tells people all of the reasons they should move to Texas, but only if CFB also professes to like tofu-wrapped bacon within a month of that.

All bets are off if Rich commits to retiring 'this year' instead of 'next year if the economy is good'

 

[RockOn]

Obviously, since I'm typing here, one can still view posts of those on their ignore list. However, it does cut down on the chaff while reading.



And surely you know what emeritus means?



Well, feel free to compare away. What's the NPV and IRR of whatever annuity mix you choose with whichever riders you like? How does it compare to whichever other funds you'd like to compare it to? Feel free to start a new thread on the subject, I believe it's been suggested to pursue that a few times. Or, dig up one of the other annuity thread and start the discussion there.

I'm only suggesting that including a fund such as the managed payout funds would be a fair comparison. As opposed, for instance, to hatian penny stocks.

My only contribution is that I know what the inside of an annuity company looks like and I wouldn't trust one with my money over what I reasonably expect my investment horizon to be... and I'd get a better deal on an annuity than just about anyone here. You can discount that as familiarity bias, though.

If you want to talk about annuities go to the annuity thread and leave ERD50 alone please.

 

[ERD50]

- Erd50

 

[summer2007]

Thanks Want2retire

I looked at Vanguards explanation of each MM fund and it looks like both the Federal and Treasury are all AAA rated government so I'm not sure what the real difference is saftey wise ...maybe none?

Jim

 

[W2R]

Thanks Want2retire

I looked at Vanguards explanation of each MM fund and it looks like both the Federal and Treasury are all AAA rated government so I'm not sure what the real difference is saftey wise ...maybe none?

Jim

Jim, it is up to you to assess what you want to invest in. You can find out what each is invested in (not just the ratings) by reading the documents I cited in my post to you earlier in the thread (see below). The Treasury MM fund is invested in treasuries only. The Federal fund is not.

On page 28 of the annual report it lists the Federal MM fund holdings, which at that time apparently included some Freddie Mac and Fannie Mae and such. Those may (or may not) be great holdings, depending on how things unfold. Also, they may have moved away from these holdings since that time so do your due diligence.

Jim, in evaluating Vanguard MM funds it helps to check out the information on each fund's Vanguard webpage. The page for the Vanguard Federal MM fund is at https://personal.vanguard.com/us/funds/snapshot?FundId=0033&FundIntExt=INT . The page for Vanguard's Treasury MM fund is at https://personal.vanguard.com/us/funds/snapshot?FundId=0050&FundIntExt=INT

Then, click on "holdings" to get an overall idea of what the fund invests in. Click on "Who should invest", too, to find out some more hints about whether that particular MM fund is suited to you. Then, go to "Prospectus and Reports" and browse to find out more specific information.

It's not likely that any Vanguard MM fund would "break the buck" (and thanks, Rogersteciak for the terminology!). But in uncertain economic times such as we have been having, I believe it's something to at least view as a remote possibility.

By the way, according to their February 29, 2008 semi-annual report, it appears that the percentages of VMMXX holdings in Freddie Mac and Fannie Mae decreased quite a bit since 2007. So, VMMXX fund management is probably way ahead of us on thinking about such things.

 

[summer2007]

Thanks want2retire

I understand it better now.

One of the big questions I have now is if a MM fund ever did "break the buck"?

Jim

 

[W2R]

Thanks want2retire

I understand it better now.

One of the big questions I have now is if a MM fund ever did "break the buck"?

Jim

Nope, never has happened. Housing has never gone down in value across the whole country before, either, to the best of my knowledge.

In other words - - what has happened in the past is not 100% reliable as a predictor of the future. I am not staying up nights worrying, since I believe the probability of breaking the buck is low, but the possibility does exist. If everything always stayed the same, we'd all be millionaires by now.

 

[ziggy29]

I understand it better now.

One of the big questions I have now is if a MM fund ever did "break the buck"?

To my knowledge some funds have seen their NAV drop below a dollar but the fund added enough of its own capital to restore the $1 share price.

In other words, MMFs have broken the buck, but shareholders typically haven't lost anything because of it. There's no guarantee funds will continue to do this, but they all know that losing money in an MMF would be the kiss of death for that fund, so if they can afford to do so, most likely I think they would continue to support the $1 share price. Again, no guarantees.