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Old 10-10-2023, 04:29 PM   #141
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It would only be equivalent if in both cases that inflation substracted from the nominal return, and that would apply whether nominal returns are higher or lower than inflation. If equity returns were negative then real equity returns would be more negative.

Vanguard's outlook for US equities for the next decade is 3.7%-5.7%, for US bonds is 4.0%-5.0% and for inflation is 1.9%-2.9%. So that would mean real returns of 1.8%-2.8% for US equities and 2.1%-2.2% for bonds.

https://advisors.vanguard.com/insigh...jected-returns
I may have worded my post poorly. Im not suggesting the % loss would equivalent. I am suggesting a period of negative interest rates is possible, and if it occurs, the fixed income portfolio does lose - in purchasing power.
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Old 10-10-2023, 05:03 PM   #142
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I think you mean 35/65 Equity/FI.
You are right. I'll fix that.
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Old 10-10-2023, 05:25 PM   #143
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I may have worded my post poorly. Im not suggesting the % loss would equivalent. I am suggesting a period of negative interest rates is possible, and if it occurs, the fixed income portfolio does lose - in purchasing power.
Where you say negative interest rates I think you mean negative real interest rates. I don't think that nominal interest rates will ever be negative in the US. Also, in theory anyway, interest rates should never be negative since the base building block for interest rates is expected inflation, although there have been period of time with negative real interest rates.

But WADR, an equity portfolio, unlike fixed income can have negative nominal returns and when adjusted to real returns are even further negative... so equities can lose purchasing power too.
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Old 10-10-2023, 05:57 PM   #144
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Where you say negative interest rates I think you mean negative real interest rates. I don't think that nominal interest rates will ever be negative in the US. Also, in theory anyway, interest rates should never be negative since the base building block for interest rates is expected inflation, although there have been period of time with negative real interest rates.
I mean both. Yes, negative rates are improbable, but not out of the question. 2 years ago the world has over $1T earning negative rates. Our (US) monetary policy is much better, so unlikely, but this thread is about risk.

The greater risk is negative real rates. We have seen them and I think there is a real possibility we will see them again.
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But WADR, an equity portfolio, unlike fixed income can have negative nominal returns and when adjusted to real returns are even further negative... so equities can lose purchasing power too.
I agree. Im not suggesting equities are safer than fixed income. I do believe over a longer time period, a portfolio with an equity allocation around 25%-30% is safer than a portfolio with pure fixed income.

One more thing to consider is taxes. With higher inflation and real positive interest rates taxes also rise and the net after taxes may be less than inflation for middle income taxpayers. This is rarely mentioned. The much more favorable tax rate for capital gains makes a difference.
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Old 10-11-2023, 05:59 AM   #145
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10-Year Real Interest Rate https://fred.stlouisfed.org/series/REAINTRATREARAT10Y

I happen to admire the 35/65 portfolio or fund (Wellesley). Far from perfect, but I also think some equity is required over the long period.
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anybody else super conservative?
Old 10-11-2023, 07:33 AM   #146
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anybody else super conservative?

Were 50/45/5 (the 5% is a speculative investment), which has been pretty conservative for us in our 50s. I hope to be brave enough to have a more AGGRESSIVE equities allocation starting age 70 in proportion to what full SS replaces on the fixed income side. If were still around 50/50 AND have 30% or so of our income from SS, AND significant home equity, and maybe a little enjoyable w*rk income, I worry about being invested too conservatively in the face of longevity risk.

What I really hope happens is the 5% risk investment works well and changes the game entirely. Plan B!

Michael Kitches showed the logic of a more conservative allocation in the decade before and after retirement to manage sequence of returns risk, followed by a more aggressive allocation later to address longevity risk.

https://www.kitces.com/blog/managing...ment-red-zone/

To be sure, he wrote that piece in 2016 and Id guess he would not have many takers this decade, the way bond funds have fared.
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Old 10-11-2023, 08:42 AM   #147
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It's true that insurance is a "bad" investment unless you die early. But all those years they had that insurance they were covered for their premature death and subsequent loss to the business. I'm not a shill for the insurance industry, but it has it's usefulness in some instances.
Of course, I did not say it was theft. However:

1. If they wanted life insurance they could have received a multiple of the insurance they purchased for the same money.

2. If they wanted an investment they could have received a multiple of the return they purchased for the same money.

The fact that they cashed it tells me that they bought the wrong product since there was no need for "whole life" protection.

Anyway, just opened my eyes to compound interest and how much consistently investing thousands of dollars can be worth.
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Old 10-11-2023, 08:48 AM   #148
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Originally Posted by Markola View Post
Were 50/45/5 (the 5% is a speculative investment), which has been pretty conservative for us in our 50s. I hope to be brave enough to have a more AGGRESSIVE equities allocation starting age 70 in proportion to what full SS replaces on the fixed income side. If were still around 50/50 AND have 30% or so of our income from SS, AND significant home equity, and maybe a little enjoyable w*rk income, I worry about being invested too conservatively in the face of longevity risk.

What I really hope happens is the 5% risk investment works well and changes the game entirely. Plan B!

Michael Kitches showed the logic of a more conservative allocation in the decade before and after retirement to manage sequence of returns risk, followed by a more aggressive allocation later to address longevity risk.

https://www.kitces.com/blog/managing...ment-red-zone/

To be sure, he wrote that piece in 2016 and Id guess he would not have many takers this decade, the way bond funds have fared.
I use the Kitces strategy implemented this decade, but with individual bonds. It has turned out better that I could have imagined. More cashflow than we can spend. A ladder strategy has flexibility inherently built in by the very nature of having fresh cash to reinvest to take advantage of changing conditions.
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Old 10-12-2023, 12:49 AM   #149
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  • 38% of the portfolio are brokered CDs at a weighted average of 5.0%... range is 4.5% to 5.4%
  • 32% are Agency bonds at a weighted average yield of 5.4%... range is 4.4% to 6.5%
  • 18% of the portfolio are corporate bonds at a weighted average yield of 5.2%... range is 4.8% to 6.0%
  • 7% are i-bonds with a weighted average yield of 4.1%
  • 4% are preferred stock with a weighted average yield of 7.3%... range 6.3% to 8.0%
  • 1% are money market funds with a 5.2% yield

ALL/PRBALLSTATE CORP8.000
C/PRJCITIGROUP INC7.125
C/PRKCITIGROUP INC6.875
MET/PRAMETLIFE, INC6.286
I just saw this today.
Those rates were not available say 3 years ago so how do you have everything invested at those rates?
Did you sell everything and buy all those CD’s recently?
The agency bonds are all short term callable.
I had one preferred stock in my life, Lehman Brothers,and lost every penny.
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Old 10-12-2023, 03:53 AM   #150
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I just saw this today.
Those rates were not available say 3 years ago so how do you have everything invested at those rates?
Did you sell everything and buy all those CD’s recently?
The agency bonds are all short term callable.
I had one preferred stock in my life, Lehman Brothers,and lost every penny.
Interesting question. Three years ago rates were lower overall, but I was able to find nooks and crannies of decent yields opportunistically. I had loaded up on the credit union CD specials that were offered in 2019 (3.5% Suncoast CU and NFCU, 3.0% GTE Financial and NFCU, and others) and I had a portfolio of about 25 preferred stocks that yielded about 5% and investments in Dominion Energery Reliability Investment Notes, GM RightNotes, Toyota IncomeDriver Notes, etc. that provided decent short term yields.

I sold the preferreds in Jan 2022 as it was apparent that interest rates were about to rise and the preferreds would get crushed. Then with the proceeds of the preferred stock sales I wrote cash covered puts on blue chip stocks for income for about 6 months and did ok with those. Then in late 2022 I tired of that and started assembling the bond portfolio.

About half of my fixed income are callable and the other half noncallable. I'm comfortable at that level and I'm being fairly compensated for the call risk.... usually about an additional 100 bps. I'll take the additional 100 bps when I can and accept the call risk. I've been pretty disciplined about not going over 50% callable. If they get called then I'll just reinvest.

Your last sentence reminds me of the saying from Indiana Jones and the Last Crusade :


Just kidding. Very few could have anticipated Lahman's collapse that made your preferreds worthless. However, I do set limits on the amount that I invest in any one corporate credit that applies to both preferreds and corporate bonds that would hopefully limit losses in the of a black swan on any one company.
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Old 10-14-2023, 01:49 PM   #151
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Of course, I did not say it was theft. However:

1. If they wanted life insurance they could have received a multiple of the insurance they purchased for the same money.

2. If they wanted an investment they could have received a multiple of the return they purchased for the same money.

The fact that they cashed it tells me that they bought the wrong product since there was no need for "whole life" protection.

Anyway, just opened my eyes to compound interest and how much consistently investing thousands of dollars can be worth.

Yeah, in hindsight, whole life is probably a bad idea. We went with one of the hybrids (Universal something or other IIRC.) Whole life does has some flexibility that term does not have and also has the advantage of the premiums not going up over time. It's possible that some want a "known" cost over time more than the most efficient product. Let's say after 10 years the insured is a much greater risk. With a whole life product, his premium stays the same but his premium for any other insurance product purchased (like universal or term) might sky rocket.

Again, I agree that whole life is probably NOT the best insurance vehicle. The current problem with the two policies I hold (some kind of universal) is that the premiums will increase to keep them in force. In my case, that's a bet I'm willing to take for the sake of DW (as my health has turned to, well, cwap!) I'm just trying to make the best of a less than ideal situation. YMMV
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Old 10-23-2023, 08:43 PM   #152
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Youngster. LOL. Just turned 65. Buried mom at 89 and dad at 86 so gotta plan to at least 90 or 25 more years.
Can't really use family history too strongly...

for example, both of my parents were gone early (52 and 62) and most of their sides made it to roughly 82-84, with one more remote aunt making it to 99.

As I'm 67 (and thus have slready outlived either), I have life expectancy in the range of 84-86, but use 92 for planning since: a) its about two std dev above the mean expected, b) more educated and higher net worth cohorts have a slightly higher LE, c) spouse is a few years younger and need to consider not joint life but rather last to pass. (With our assets, pension, and both SS we will not have any difficulties.)
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Old 10-23-2023, 08:56 PM   #153
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I have a feeling for many reasons: lag effect of interest rate hikes, overdue recession, fixed income looking really attractive, demographic shifts - boomers retiring, etc, that we could be in for at least a mid range length of time where stocks underperform. Doesn’t mean you should ignore them, just don’t expect historic returns for awhile.
The question we all must ask is do we have awhile to wait? For some that’s an easy yes, for others it’s a no.

from the numbers posted previously for expected market returns, the "equity risk premium" isn't high enough currently to push me towards higher equity (previous was 45/50/5 and have lowered with some TLH) and with some of my CD's and treasuries in the 5.4-5.6 range there really isn't a high need, given that we've been well under 2% wr and, as this is my first year of SS (FRA +), we are finding that we aren't yet spending all our current income (and will be getting more when the higher PIA SS is claimed) ... much less actually pulling from our savings yet.

perhaps it's almost time to visit the "blow that dough" thread... but we do want to see what longer term inflation is before going down that road. That the 20 yr treasury is at 5.2% isn't exactly comforting...
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Old 10-25-2023, 08:07 AM   #154
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Can't really use family history too strongly...



for example, both of my parents were gone early (52 and 62) and most of their sides made it to roughly 82-84, with one more remote aunt making it to 99.



As I'm 67 (and thus have slready outlived either), I have life expectancy in the range of 84-86, but use 92 for planning since: a) its about two std dev above the mean expected, b) more educated and higher net worth cohorts have a slightly higher LE, c) spouse is a few years younger and need to consider not joint life but rather last to pass. (With our assets, pension, and both SS we will not have any difficulties.)


Agree.
I use 92 as thats what the Fido planner defaulted to plus assume final 2 years in a nursing home.
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Old 10-25-2023, 01:20 PM   #155
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Agree.
I use 92 as thats what the Fido planner defaulted to plus assume final 2 years in a nursing home.

I'm using 99 and that includes DW as well. No particular reason other than it's over 99% likely to include MY particular longevity as well as DW's (and then some!) If my plan w*rks to 99, it aught to be golden for my needs.



I don't really try to put a number on how long I'll live. I have heard that you should take mom plus dad ages/2 + 5. That puts me at 90. With my health, I'm not so sure... YMMV
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