Oh the Pain

[kongmen]

I disagree with the opinions here on paper losses being equal to paper gains.


Paper gains in index funds carry more weight because the overall trend of the market over it's lifetime has been upwards. By utilizing historical data one can reasonably expect to retain paper gains and mitigate paper losses.

 

[mathjak107]

Buckets of Money
I used to listen to Ray. I even drove 150 miles to attend a show and got a free continental breakfast! Unlike the radio program, he was pushing untraded REITS at the seminars. I think the claims around those products is what got him in trouble.

Imagine my surprise at getting an email from Ray Lucia Jr about a month ago!

No it wasn’t his promoting untraded reits …it was his calculations and claims on his buckets that did him in as he never really did research into them doing what he claimed

 

[mathjak107]

I was noodling with my rough spreadsheet that has inflation rate and investment return rate. Usually I set it to provide a real rate of return of about -2%, say inflation 5% investment return 3%. That used to get me up into my early 90's, say 30 years.

Lately I have tried setting the variables to something like inflation 12% and investment return 10%. I noticed that this real rate of return of -2% is not necessarily the same as the 5%/3% -2% real rate. It seems to cut off a few years of survival.

In any case, it is striking me that if we have persistent inflation anywhere close to what we are currently having, I will have problems unless I can jack up my investment rate of return to at least the inflation rate.

I am going to look into TIPS. Right now, about 14% of my portfolio is in series I savings bonds and I have been happy to see the nice return.

Tips and i bonds are very different…tips are down and not very good deals.

Numbers in a spreadsheet do not tell you about political risk that often comes with high inflation. You have to use some intuition and historical extrapolation to guess what results from high inflation and why you don't want to use TIPS.

1) High inflation is a political problem in almost every case. The people causing the inflation know they are doing it.
2) Because high inflation is unpopular with the masses, the people in charge are always going to lie about it as long as possible to deflect blame.
3) Then when lying doesn't work, they will implement policies like price controls to make it look like they are doing something. This always makes it worse.
4) Along the way, they will manipulate economic numbers to try to trick the markets. However the markets are much smarter than the typical politician, who is usually an idiot based on my experience.

But these things are not going to show up in Excel. There is no ("IDIOT POLITICIAN ) function you can call. There is no way for you to anticipate what actions they will take to lie about the situation. And, there is no way for you to know how the markets are going to react to the mess.

I will only suggest that the markets will figure out the right thing to do and that right thing usually is not relying on government numbers about inflation.

so tips are like buying fire insurance from an arsonist

Or you can simply go back and read Nixon's, Ford's and Carter's speeches about inflation in the 1970s. It was lie after lie after lie. A decade of lies.

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.

 

[daylatedollarshort]

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.

Do you have a sources for that statement?

Some individual TIPS may be down if they were bought at real yields lower than today's market prices. Even then they are only down if you plan to sell prior to maturity. At maturity they are redeemed at par plus the accumulated inflation adjustment. At a 0% real yield, a TIPS ladder would provide a 3.33% safe withdrawal rate with the relative safety of Treasuries over 30 years. At 1.3% the SWR is 4%, and 3% the SWR is 5%. Current TIPS yields have been rising and can be found here - United States Rates & Bonds - Bloomberg. All but the 5 years are above 0%. With the planned Fed's interest rate increases, it is possible they may go to 2 - 3% real yields when inflation cools, people stop panic buying them and raising the prices.

Morningstar's latest safe withdrawal rate for the future is 3.33%, with a 50/50 portfolio, based on current market conditions, so it is not any higher than TIPS but with more ups and downs and no federally backed guarantees.

TIPS are inflation adjusted and all but the 5 years have higher real yields than I bonds currently, so can you explain more about why you wouldn't rely on them in the slightest for inflation protection? TIPS have some drawbacks, like tax treatments, compared to other asset classes, but they are adjusted for CPI inflation, just like I bonds. The money we need for our ongoing retirement expenses is more than covered by Social Security, pensions and a TIPS ladder. Then we are free to play around, and possibly take more chances, with the rest as we see fit.

 

[Turbo29]

Buckets of Money
I used to listen to Ray. I even drove 150 miles to attend a show and got a free continental breakfast! Unlike the radio program, he was pushing untraded REITS at the seminars. I think the claims around those products is what got him in trouble.

Imagine my surprise at getting an email from Ray Lucia Jr about a month ago!

"Former registered investment adviser and its owner committed securities fraud by making material misrepresentations to prospective clients about their retirement wealth management strategy. Held, it is in the public interest to bar the owner from associating with an investment adviser, broker, or dealer; revoke respondents’ investment adviser registrations; order respondents to cease and desist from further violations of the provisions violated; and order civilpenalties of $250,000 against the investment adviser and $50,000 against the owner"

Securities and Exchange Commission

 

[gayl]

Obviously we haven't hit bottom yet bc I'm stuck between selling 20% of SCHB in tax deferred account to avoid cap gains to double individual stocks & cash. Whenever I think that we go down