Fixed Rate Investments & Inflation

[FinanceDude]

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Originally Posted by Gearhead Jim What non-volitile investmets DO you think are the best-but-imperfect hedge against inflation?

Your statement is an oxymoron. Of course, I was referring to equities, namely high dividend paying stocks and ETFs, if you want sector play.

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Right now, TIPS look like a better bet than ordinary bonds (Treasury or high grade corporate) and probably better than CD laddering. You probably have some things in mind, please comment.

There are some nice muni bond issues out there. I bought some for a client today, double tax exempt at a 5.25% coupon, selling at 98. Issue to A- rated.......

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BTW, I am NOT suggesting an all-TIPS portfolio or even that all of someone's fixed income allocation, should be in TIPS. Although I haven't done the detailed work necessary to prove or disprove it, my own personal inflation rate seems pretty close to the government numbers.

That's great, you must not use much energy or drive your vehicles much.........

[socca]

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Originally Posted by FinanceDude I know folks 100% in CDs that are blissfully happy.

I wish I was 100% in CDs right now. Instead, I have huge exposure to the muni market. Munis are getting hammered right now. Of course, compared to the average equity investor, my unrealized losses are small. Still, I'm not used to even small unrealized losses on my portfolio. Fortunately, I should have no need to ever realize these losses. If society doesn't collapse, I should be able to ride this out.

P.S. Muni fund managers perform a form of dollar-cost averaging for their long-term clients when they rollover higher-priced, lower-yielding bonds into lower-priced, higher-yielding bonds. So, even in a hostile environment, it's not all bad.

[roger r]

Fastfade,
I'm early retired at 57 and am also very conservative. My exposure to stocks is maybe less than 30% (depending on the day anymore). There will be times when your all fixed portfolio is envious, and other times when 100% stocks is envious, but I really think a conservative middle ground is the best. I've only invested money in stocks that I could hypothetically loose all and still be able to frugally get along. Every financial advisor and retirement book I've read has said that I am too conservative and will battle inflation, but there maybe some re-writing of books when our current situation is over.

I guess that's slightly a ramble, but if I were in your shoes, I think I would take a bigger look at what your income would be over your estimated life expectancy using you current investments and taking a typical inflation rate into account. And also what sort of nest egg you would like to leave, as you will probably be depleting the pricipal as inflation eats away at things. If this is enough to get by, maybe there is no reason to be involved in the stock market. Plenty of online calculators to help with this.

I personally don't see a problem with cost averaging into the market these days, but wouldn't buy anything that I would see the need to sell on the 5+ year horizon.

As one of my old finance professors would say, risk and return will always be intrinsically realted.

[Fastfade]

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Originally Posted by roger r Fastfade, I'm early retired at 57 and am also very conservative. My exposure to stocks is maybe less than 30% (depending on the day anymore). There will be times when your all fixed portfolio is envious, and other times when 100% stocks is envious, but I really think a conservative middle ground is the best. I've only invested money in stocks that I could hypothetically loose all and still be able to frugally get along. Every financial advisor and retirement book I've read has said that I am too conservative and will battle inflation, but there maybe some re-writing of books when our current situation is over. I guess that's slightly a ramble, but if I were in your shoes, I think I would take a bigger look at what your income would be over your estimated life expectancy using you current investments and taking a typical inflation rate into account. And also what sort of nest egg you would like to leave, as you will probably be depleting the pricipal as inflation eats away at things. If this is enough to get by, maybe there is no reason to be involved in the stock market. Plenty of online calculators to help with this. I personally don't see a problem with cost averaging into the market these days, but wouldn't buy anything that I would see the need to sell on the 5+ year horizon. As one of my old finance professors would say, risk and return will always be intrinsically realted.

Hi Roger. I agree with a lot you say. Like others who've posted here, my situation depends on whether a high rate of inflation lasts for several years. For now we can live fine on less than the interest we are making on our fixed rates and leave the principal untouched. When/if my real inflation rate exceeds our fixed rate return we still have expenditures that can be trimmed (if needed) before we consider eating into our pricipal.

No doubt there are better strategies than mine, but for now I can take a wait and see approach for the next 10 months as that's the earliest any of my funds become available for new/continued stategies.

Thanks for your comments

[socca]

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Originally Posted by socca Munis are getting hammered right now.

This article suggests that munis are a buy right now:

Bloomberg.com: Exclusive

I'm hoping these folks are right!

[freebird5825]

i'm already into TE munis. and I am just loving the dividend yields YTD.
i did a fund screener exercise on muni funds at M* today. average muni bond funds are down approx 9-10% YTD, so make sure it's a long term strategy.

[wolf]

"Fastfade".....I agree with "roger r"...his points and philosophy match mine. Everyone I talk to says I'm to consertive, but as mentioned earlier, sometimes it makes sense to "not follow the crowd" even though it seems illogical.