Inflation -- A threat to Retirees

[RonBoyd]

Why outsource to the third world,
when much of the third world has
immigrated here !

And I sincerely apologize for that.

My family came here, mostly from "undeveloped" areas, during the years 1640 (France) and 1655 (Scotland) without consulting me. Nevertheless, I will continue to ask you Native Americans to forgive us.

 

[Helena]

Whistling past the cemetery won't change the facts.

 

[Sarah in SC]

Since I didn't understand the idiom, maybe others would be interested as well:

Whistling past the graveyard

• If someone is whistling past the graveyard, they are trying to remain cheerful in difficult circumstances. ('Whistling past the cemetery' is also used.)

Speaking as another unfortunate immigrant from the 1600s....

 

[MichaelB]

Memo to self: Drink less Whiskey and Beer. Drink more Orange Juice and Milk. Easy on the Hot Sauce and Perfume.

What? Less whiskey, less beer, more oj, more milk. Seems to you you got your priorities upside down. It ain't the price per gallon, it's the enjoyment per ounce that counts.

Michael

 

[Marquette]

My dad's dad's dad came here in 1916 according to Ellis Island. However, Kaiser's army doesn't show him discharged until 1919. Dessertion or bad record keeping?

We've fought for the last 60 years to export capitalism and democracy to the world, why are we upset now that we won? (at least on the capitalism front). If it's not what we wanted, then it might be possible to change it, but what a tough slope to crawl back up.

 

[ziggy29]

My brother is one of NASA's last remaining Apollo era scientists, so I asked him about space solar and he replied that initially it would be quite expensive... but the $$$ spent on the war in Iraq
would be a start.

The problem is that we have mentally spent this money a dozen times, or so it seems.

There are so many things people propose to fund by stopping the Iraq quagmire. Fine and good, but there are two problems:

(1) We can't fund all these different things with the same proposed source of revenue.

(2) Even if the Iraq operation ended today, there would still be a budget deficit, and thus we still couldn't afford it.

 

[FinanceDude]

The problem is that we have mentally spent this money a dozen times, or so it seems.

There are so many things people propose to fund by stopping the Iraq quagmire. Fine and good, but there are two problems:

(1) We can't fund all these different things with the same proposed source of revenue.

(2) Even if the Iraq operation ended today, there would still be a budget deficit, and thus we still couldn't afford it.

Don't worry, there's always tax increases to rid ourselves of any pesky problems in the USA............

 

[al_bundy]

The last time oil went through the roof, NASA was on the moon.
Now, 40 years later, here we are at the mercy of oil again and
NASA has sent another robotic mission to Mars... NASA's first
landing on Mars [Viking 1] was in 1976 !

So, why do I relate NASA with oil ? Because I believe the answer
to the energy problem is space solar generated electricity.

In the 1990s a congressional committee asked NASA to develop
space solar energy.

NASA had years of positive study... asked for government funding
of a space solar energy program and NASA had received government
approval and funding of a space solar energy program... then suddenly,
the whole project was mysterious cancelled without explanation...
August before 9-11.

NASA Spaces on Energy Solution


My brother is one of NASA's last remaining Apollo era scientists,
so I asked him about space solar and he replied that initially it
would be quite expensive... but the $$$ spent on the war in Iraq
would be a start.


~

these days we have venture capitalists that are funding companies to solve future energy problems. NASA is not the only game in town.

i personally trust the VC's more than NASA in this case.

 

[Zoocat]

One good thing about inflation: my mortgage payment will start to look cheaper and cheaper!

 

[ziggy29]

One good thing about inflation: my mortgage payment will start to look cheaper and cheaper!

Inflation is great for debtors as long as your income more or less keeps up (or even close to it). It stinks for savers and lenders, though.

 

[Helena]

Inflation is great for debtors as long as your income more or less keeps up (or even close to it). It stinks for savers and lenders, though.

Don't count on inflation to last...
After Weimar Germany's hyperinflation...
came deflation, depression, then Hitler.

 

[youbet]

Absolutely, and well said. It underscores the importance of having enough fixed equities and/or cash to hold out a while if necessary.

Rich....please help me understand. How is holding cash a hedge against inflation? Historically, that has not usually been the case.

 

[RonBoyd]

Rich....please help me understand. How is holding cash a hedge against inflation? Historically, that has not usually been the case.

Would spending "cash in reserve" be better than cashing in stocks? Hmmmm. (He didn't say he would hold it.)

 

[haha]

Inflation Make Stocks Safer Than Bonds?

Back in the mid 70s, Dr. Henry Singleton who created Teledyne and who was a very successful investor opined that equities were far safer than bonds during inflationary times.

In my map, modern governments make inflation endemic. None of us will live long enough to see deflation, barring nuclear war. So worrying about or hoping to profit from deflation is a waste. Occasionally something happens like the entry of a billion new workers who produce much more than they consume. This may slow inflation down, but never stop it.

In my view there should be zero allocation to nominal bonds, except for short term money parking needs. Large allocations should be to stocks or TIPS or commodities, depending on their perceived relative valuation. Money in cash is much better than bonds, as normally at least interest rates will tend to track inflation. You will lose with this investment. but less than with long term bonds. And you have liquidity.

Many times it might be best to have close to 100% stock allocation-but there is one large caveat. A way to tame volatility must be found. A big COLA'd pension is best.

Next best for me is a growing dividend stream.

Those who rely on total return asset allocations will almost have to keep a larger fixed income allocation. They can exercise skill with maturity choices and similar.

Ha

 

[boont]

Pets dot com

" i personally trust the VC's more than NASA in this case"

al_bundy


Yeah, right. The VC's did such a great job in developing the internet. Oh, I forgot, they didn't develop the internet, it was a government program that developed it.

Well what about the Golden Gate Bridge? Sorry, another government program. Hover Dam? Sorry. Try again.

Well, what did the develop? Pets.com!

b.

 

[Rich_by_the_Bay]

Rich....please help me understand. How is holding cash a hedge against inflation? Historically, that has not usually been the case.

I was thinking having cash to spend when stocks were beaten down early in an inflationary period, and perhaps to rebalance back in when things started loosening up. As to fixed, that is probably when I would carve into my TIPs.

 

[youbet]

I was thinking having cash to spend when stocks were beaten down early in an inflationary period, and perhaps to rebalance back in when things started loosening up. As to fixed, that is probably when I would carve into my TIPs.

Having some cash to spend during inopportune times for liquidating stocks, bonds, real estate or other non-cash assets would be a good thing. But holding significant cash throughout a prolonged period of high inflation would probably be a bad thing, at least in my opinion. I sense a trade-off where inflation erodes (but doesn't necessarily eliminate) the advantages of holding a large cash allocation.

Regarding "when things started loosening up." ......... I know you're a lump sum rather than dollar cost average guy and I admire that courage. What's your plan to pull the trigger with that cash stash going forward?

 

[Rich_by_the_Bay]

But holding significant cash throughout a prolonged period of high inflation would probably be a bad thing, at least in my opinion.

Regarding "when things started loosening up." ......... I know you're a lump sum rather than dollar cost average guy and I admire that courage. What's your plan to pull the trigger with that cash stash going forward?

Actually, I wasn't thinking about cash to hold, but rather about cash to live on for a while. Buying back in later on, I expect that'll be an exercise in rebalancing. For now, it's all talk. What I actually do when it's no longer hypothetical remains to be seen, but I suspect pretty much what I said.

As to when I pull the trigger, well REWahoo has been urging me to hold off until I'm sure I have enough cushion. He wants me to be sure. So I'll just keep on stashing cash until he gives me the green light .

 

[REWahoo]

As to when I pull the trigger, well REWahoo has been urging me to hold off until I'm sure I have enough cushion. He wants me to be sure. So I'll just keep on stashing cash until he gives me the green light .

For now, it's all talk.

Understatement of the year...

 

[MichaelB]

It underscores the importance of having enough fixed equities and/or cash to hold out a while if necessary.

Right. That and a good “Plan B”. If you have all that, seems IMHO to be a “better than average” time to FIRE, given all this negativity already being priced in the portfolio, the market, and hopefully your expectations.

Michael

 

[Marquette]

Right. That and a good “Plan B”.

A good example of a Plan B is to work just one more year, or maybe 2 more years, for example. You never know, 2012 might be a much better time to FIRE than 2008. After all, time is money so spend some more time making more money.

 

[MichaelB]

A good example of a Plan B is to work just one more year, or maybe 2 more years, for example. You never know, 2012 might be a much better time to FIRE than 2008. After all, time is money so spend some more time making more money.

That's more like delaying plan A. I see "plan B" more like - I'm ready to FIRE and the numbers add up. If something happens after I execute, well, we have an option. Could be sell the house, could be work part time, could be ... well, just about anything - as long as it's realistic and keeps us away from the worst case scenario.

It just pays to keep in mind that no plan is flawless, stuff happens, and mother nature has a very nasty sense of humor.

Michael

 

[RonBoyd]

It just pays to keep in mind that no plan is flawless, stuff happens, and mother nature has a very nasty sense of humor.

This quote is attributed to Colin Powell (but I suspect the truth of it has been known for a very long time).

"No battle plan survives contact with the enemy."

 

[Zoocat]

Inflation is great for debtors as long as your income more or less keeps up (or even close to it). It stinks for savers and lenders, though.

But if interest rates go up, then your savings will keep pace or exceed inflation, a la 1970s with 14% bonds. Some people still have those bonds!

 

[ziggy29]

But if interest rates go up, then your savings will keep pace or exceed inflation, a la 1970s with 14% bonds. Some people still have those bonds!

Any such double-digit bonds issued today in a very inflationary environment would be callable -- guaranteed -- and probably in as little as 5 years.