'60/40' portfolios are facing worst returns in 100 years: Bank of America

[Finance Dave]

I have never had anywhere near enough money to buy myself a politician, even an ineffective one.

The ineffective ones cost more.

 

[NW-Bound]

I have never had anywhere near enough money to buy myself a politician, even an ineffective one.

What?

Who does, other than billionaires? Peons like us don't buy politicians. And then, there are competing billionaires so it's not easy for billionaires to sway politics either. At least, that's my hope.

 

[youbet]

I have never had anywhere near enough money to buy myself a politician, even an ineffective one.

Here in Illinois, voters don't buy politicians, politicians buy voters. And they are very, very good at it!

 

[Sunset]

Here in Illinois, voters don't buy politicians, politicians buy voters. And they are very, very good at it!

And companies buy politicians , or at least rent them for certain votes. That's why my AT&T bill is higher from paying the $23 million dollar fine for bribery... What good is giving a fine to a company if they just raise customer rates

 

[hotwired]

This is why i don't like to weigh inflation too heavily in my planning. Literally every single human experiences a different "blended" inflation rate.

 

[Koolau]

Why are you so obsessed with inflation? I just avoid buying when goods and services are overpriced. Most people do the same. This is why inflation is self-correcting. Look at the price of PCs, TVs, and other electronics compared to a year ago. They are crashing fast. Go visit your local Home Depot and you will see that prices have dropped substantially for building products and people are still not buying. It's not like people are starving today because they can't afford to buy food. I just focus on preserving capital and generating as much income as possible.

It's not that folks (especially most of us here) can't navigate the current high inflation. Many of us cut back, substitute, make do, etc. just like those who are still struggling with a J*b and growing a family. No, the issue to "obsess" over is that we are all taking a hit to our overall buying power (think of it as a negative return on your portfolio if that helps you visualize it.) AND, that is never coming back. Once inflated, prices rarely return. Sure there, are some items like fuel that have normal ups and downs and they may return close to their original prices but only after sucking an inordinate share of wealth from consumers.

Realistically, you can think of your entire retirement stash and picture it as a number (do a back of the envelope calculation or figure it to the penny at the close of the stock market this afternoon.) Now, multiply by, say, 10% and that's what it's BUYING POWER has lost in the past year. That's not coming back though you may be able to increase the NUMBER in the future.

Obsession? That's a loaded word. To me, inflation is a much more frightening word than, for instance, recession. I reject the "obsession" allegation but you are free to think of it as you will as YMMV.

 

[youbet]

This is why i don't like to weigh inflation too heavily in my planning. Literally every single human experiences a different "blended" inflation rate.

I look at it this way: I assume that living the way I do now will cost me a bit more next year than this year. That will happen almost every year. This will compound and over a lifetime my COL will increase by a significant multiple.

 

[COcheesehead]

I giggle when someone says why accept X% on a bond when inflation is X% plus. Because life is fair sometimes and the bond market that used to pay a $100k a year on my bond ladder now pays me $150k a year. I can absorb a lot of inflation with that extra money and with little or no tweaks to my lifestyle.

 

[Freedom56]

A year ago, I had a lot of cash sitting in FZDXX earning about 0.01%. I took some of that cash and gave myself a $82K raise with much higher coupons. I have a lot of dry powder going into tax loss selling season where I will be searching for those inflation busting bargains. All new maturities and coupon payments are going to compound at yields I haven't seen since 2008.

 

[VanWinkle]

I posted an excerpt in another thread recently from The Bond Book by Annette Thau. She said, "For reasons that escape me, individual bonds and bond funds are treated in the financial press as interchangeable instruments. But they are not." Individual bond holders are having a pretty good year with rising yields and $0 loss of capital. But you wouldn't know any of that from the financial article headlines.

Sell your individual bond held for a year or more and see if you have a capital loss.

 

[daylatedollarshort]

Sell your individual bond held for a year or more and see if you have a capital loss.

We've gone over this a lot, but I'll bite and say it one more time, individual bonds held to maturity have no market risk. You have to be able to hold your bonds to maturity to not risk a loss, which is what everybody in the Golden Period thread for bonds is doing. Nobody there is buying bonds to trade or sell prior to maturity.

Posters here holding bonds to maturity, especially inflation protected bonds, are experiencing the best returns we've had in years and no losses. If you don't believe Ms. Thau, it is literally on the Fidelity web site comparing bonds to bond funds Bonds vs Bond Funds - Fidelity, under market risk.

 

[aja8888]

Sell your individual bond held for a year or more and see if you have a capital loss.

I don't think there are any bond traders in this thread.

 

[daylatedollarshort]

I giggle when someone says why accept X% on a bond when inflation is X% plus. Because life is fair sometimes and the bond market that used to pay a $100k a year on my bond ladder now pays me $150k a year. I can absorb a lot of inflation with that extra money and with little or no tweaks to my lifestyle.

And what are the alternatives? If there are no other higher paying alternatives, then 4% to 6% in bonds and 10% in TIPS look pretty good compared to losing -17% in a bond fund or making 1.6% in a stable value fund.

 

[NW-Bound]

And what are the alternatives? If there are no other higher paying alternatives, then 4% to 6% in bonds and 10% in TIPS look pretty good compared to losing -17% in a bond fund or making 1.6% in a stable value fund.

True.

But one buys these assets that trail the inflation while being in tears, not giggling.

You don't win. You only try to minimize the loss.

 

[VanWinkle]

We've gone over this a lot, but I'll bite and say it one more time, individual bonds held to maturity have no market risk. You have to be able to hold your bonds to maturity to not risk a loss, which is what everybody in the Golden Period thread for bonds is doing. Nobody there is buying bonds to trade or sell prior to maturity.

Posters here holding bonds to maturity, especially inflation protected bonds, are experiencing the best returns we've had in years and no losses. If you don't believe Ms. Thau, it is literally on the Fidelity web site comparing bonds to bond funds Bonds vs Bond Funds - Fidelity, under market risk.

You missed the point of my post. I never said anyone was trading bonds. But if you did, you would experience a loss just like the bond fund loss if you sold shares of a bond fund.

That was my point, not that anyone here was trading individual bonds.

W

 

[daylatedollarshort]

You missed the point of my post. I never said anyone was trading bonds. But if you did, you would experience a loss just like the bond fund loss if you sold shares of a bond fund.

That was my point, not that anyone here was trading individual bonds.

W

I'm not really sure what your point is. Those of us who sold our bond funds and moved to individual bonds, are not selling prior to maturity, so we aren't suffering from any losses nor are we subject to market risk. Who else but a bond trader would need to sell early?

 

[daylatedollarshort]

True.

But one buys these assets that trail the inflation while being in tears, not giggling.

You don't win. You only try to minimize the loss.

We've gone over this a lot lately. Many of us have pretty low expenses compared to our incomes and low personal inflation rates, so it is still a lot of extra money making 4% to 6% instead of 1% on nominal bonds and 8% or more on TIPS and I bonds. Plus the negative real rates are being corrected monthly by The Fed. Even if they aren't bringing inflation down yet, raising the rates is still narrowing the gap.

 

[VanWinkle]

I'm not really sure what your point is. Those of us who sold our bond funds and moved to individual bonds, are not selling prior to maturity, so we aren't suffering from any losses nor are we subject to market risk. Who else but a bond trader would need to sell early?

Ok, nothing to see here, I'll move on......

VW

 

[daylatedollarshort]

Ok, nothing to see here, I'll move on......

VW

Most of us are buying bonds to hold to maturity, including buying the bonds the funds are selling at a loss because they are forced to sell them early because of redemptions or their own fund rules.

Check out the original coupons on the bonds Freedom56 finds that funds were previously buying and then what the new YTM is in the secondary markets - https://www.early-retirement.org/fo...d-income-investing-114400-39.html#post2843227.

 

[NW-Bound]

We've gone over this a lot lately. Many of us have pretty low expenses compared to our incomes and low personal inflation rates, so it is still a lot of extra money making 4% to 6% instead of 1% on nominal bonds and 8% or more on TIPS and I bonds. Plus the negative real rates are being corrected monthly by The Fed. Even if they aren't bringing inflation down yet, raising the rates is still narrowing the gap.

OK, it makes sense that it all depends on one's attitude.

Mine is that the market has given me so much over the years, and even with the recent pull back, I am still so far ahead.

What is looming in the years ahead is still unknown, but I have enough buffer that I am not worried. Still, it does not mean that if there's a way to get a bit more return I will sneer at it.

Hence, I like to peruse these threads to see what new things I can pick up, and if it can work for me.

 

[copyright1997reloaded]

Most of us are buying bonds to hold to maturity, including buying the bonds the funds are selling at a loss because they are forced to sell them early because of redemptions or their own fund rules.

Check out the original coupons on the bonds Freedom56 finds that funds were previously buying and then what the new YTM is in the secondary markets - https://www.early-retirement.org/fo...d-income-investing-114400-39.html#post2843227.

One more time - if the inflation beast isn't tamped down soon, almost all will be losers, not winners.

History has shown this over and over.

Now you might just be that special one in a hundred that magically has no "personal" inflation, that magic low rate massive fixed mortgage, and living high on the hog as a result of rampid inflation. Some people in the Weimer republic did well even as the German people got wiped out.

However, the net result of that (hyperinflation) and in many other places (including just bad inflation) like Argentina, the French Revolution, during our own revolutionary era, during the civil war, Greece, Yugoslavia, Zimbabwe and Hungary...the results for the vast majority were not good.

So keep [-]fooling[/-] telling yourself that it is a positive thing.

 

[daylatedollarshort]

One more time - if the inflation beast isn't tamped down soon, almost all will be losers, not winners.

History has shown this over and over.

Now you might just be that special one in a hundred that magically has no "personal" inflation, that magic low rate massive fixed mortgage, and living high on the hog as a result of rampid inflation. Some people in the Weimer republic did well even as the German people got wiped out.

However, the net result of that (hyperinflation) and in many other places (including just bad inflation) like Argentina, the French Revolution, during our own revolutionary era, during the civil war, Greece, Yugoslavia, Zimbabwe and Hungary...the results for the vast majority were not good.

So keep [-]fooling[/-] telling yourself that it is a positive thing.

Financially, I come out ahead with high inflation. It is simply math. I have gone over this many times, in various threads, with many math examples in the past few months of how this occurs. My inflation adjusted income is much higher than my expenses subject to inflation. I have a low fixed rate mortgage, capped property taxes and a house in a HCOL area. My posts have included an article by an economist, citing inflation winners and losers, who also laid out the math on the house and mortgage part. If you have an issue with my math calculations, or the economists' calculations, please point it out. Otherwise math calculations aren't opinions, open to debate, whether you personally understand the math or not.

Here is one of my many past examples - https://www.early-retirement.org/fo...-boost-in-40-years-113988-12.html#post2839555

Let me make an even more extreme example to illustrate my point. If someone has a $5M home, and inflation goes up 10%, their house will likely increase $500K. If they have a fixed rate mortgage at 2.5% for $3M, and they can get 10% returns in inflation adjusted bonds, the spread is 7.5%. 7.5% X $3M is $225K. A net gain of $775K, $500K on the house and $225K income with 10% inflation.

If inflation and interest rates are 0%, they still have a 2.5% mortgage to pay, are losing money on the arbitrage and the house goes up 0% in value. So they are out $3M X -2.5% = -$75K.

At 0% inflation they are down -$75K, at 10% inflation they are likely up $775K, and that is just for one year. It gets better and better for Mr. Fancy Pants $5M homeowner the more years inflation is high and the more years he makes the $775K because now he has even more money to reinvest. Plus this doesn't even cover the inflation adjusted income vs. expenses part, but I have covered that in other posts.

Related link: Inflation Winners and Losers: Who Benefits When Inflation Rises? - There are a few winners when it comes to inflation,” said Adam Deady, CFP. “Examples include governments with high debt levels and borrowers on fixed repayment plans. Think of someone with a 30-year fixed rate mortgage with a set payment each month.” ...Also winning, to an extent, are “debtors, investors in stocks, real estate, and physical assets such as gold and collectibles benefit from increasing inflation,” Thompson said. - https://www.gobankingrates.com/mone...ers-losers-who-benefits-when-inflation-rises/

History does show that inflation has winners and losers. Google " inflation winner and losers". There are tons of articles on the topic.

 

[daylatedollarshort]

From the Kahn Academy on winners and losers with inflation:

Lesson summary: The costs of inflation

Inflation can get a bad rap. For instance, some people think inflation makes everyone worse off. But it turns out that there are both winners and losers from inflation. In general, if you owe money that has to be paid back with a fixed amount of interest, you are going to benefit from unexpected inflation. On the other hand, if someone owes you money, when there is unexpected inflation the money you are paid back won’t be worth as much as the money you loaned out......

Common misperceptions

A common misperception is that inflation is bad for everyone (who likes more expensive stuff?). But this is not the case. Inflation reduces the value of money. Because of that, people who have borrowed money benefit from a higher inflation rate when they pay the money back. The interest rate that a borrower pays is effectively lower thanks to inflation.

https://www.khanacademy.org/economi...ation/a/lesson-summary-the-costs-of-inflation

 

[NW-Bound]

And what are the alternatives? If there are no other higher paying alternatives, then 4% to 6% in bonds and 10% in TIPS look pretty good compared to losing -17% in a bond fund or making 1.6% in a stable value fund.

I was reminded to look at my wife's 401k Stable Value Fund.

For the last 2 weeks, it paid 4.6% annualized. It's better than I would expect.

 

[copyright1997reloaded]

Financially, I come out ahead with high inflation. It is simply math. I have gone over this many times, in various threads, with many math examples in the past few months of how this occurs. My inflation adjusted income is much higher than my expenses subject to inflation. I have a low fixed rate mortgage, capped property taxes and a house in a HCOL area. My posts have included an article by an economist, citing inflation winners and losers, who also laid out the math on the house and mortgage part. If you have an issue with my math calculations, or the economists' calculations, please point it out. Otherwise math calculations aren't opinions, open to debate, whether you personally understand the math or not.

Here is one of my many past examples - https://www.early-retirement.org/fo...-boost-in-40-years-113988-12.html#post2839555

Let me make an even more extreme example to illustrate my point. If someone has a $5M home, and inflation goes up 10%, their house will likely increase $500K. If they have a fixed rate mortgage at 2.5% for $3M, and they can get 10% returns in inflation adjusted bonds, the spread is 7.5%. 7.5% X $3M is $225K. A net gain of $775K, $500K on the house and $225K income with 10% inflation.

If inflation and interest rates are 0%, they still have a 2.5% mortgage to pay, are losing money on the arbitrage and the house goes up 0% in value. So they are out $3M X -2.5% = -$75K.

At 0% inflation they are down -$75K, at 10% inflation they are likely up $775K, and that is just for one year. It gets better and better for Mr. Fancy Pants $5M homeowner the more years inflation is high and the more years he makes the $775K because now he has even more money to reinvest. Plus this doesn't even cover the inflation adjusted income vs. expenses part, but I have covered that in other posts.

Related link: Inflation Winners and Losers: Who Benefits When Inflation Rises? - There are a few winners when it comes to inflation,” said Adam Deady, CFP. “Examples include governments with high debt levels and borrowers on fixed repayment plans. Think of someone with a 30-year fixed rate mortgage with a set payment each month.” ...Also winning, to an extent, are “debtors, investors in stocks, real estate, and physical assets such as gold and collectibles benefit from increasing inflation,” Thompson said. - https://www.gobankingrates.com/mone...ers-losers-who-benefits-when-inflation-rises/

History does show that inflation has winners and losers. Google " inflation winner and losers". There are tons of articles on the topic.

As politely as I can say this:
1) It is not all about you.
2) I am well aware of who the "winners' are in inflation, and was long aware of it before any of the articles you mention. With inflation, owners of real things and debtors with fixed rate debt are examples of "winners".

What I am trying to get across to you (unsuccessfully I guess as you keep repeating things about your personal situation and needless article references) is that high levels of inflation has disastrous effects on capital allocation in an economy and societal impacts. There were "winners" in the Weimar republic - at least until the society got so desperate they turned to a lunatic.

But do go on about how inflation makes you a winner and thus it is a good thing and "gets a bad rap".

p.s. my math skills and logical reasoning skills are pretty good, even at my older age. Perhaps not as good as my near perfect math SAT score, or my college grades, or my three patents in computer science...but still I do "personally understand the math".