Bogleheads.org

Everyone knows bond yields will increase and prices decrease at some point. The questions are when and whether you are better off staying the course or trying to time the markets. If you go short, you're giving up some intermediate interest (i.e., spread between longer and shorter rates from now unt...

Book value is assets minus liabilities. I've been using book value in the accounting sense (as should have been clear from my posts): "In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the orig...

Larry, How are you defining assets? "In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the ass...

Larry, What are they using as a measure of assets if not book value? You list the test as "Profitability, as measured by gross profits-to-assets" ROA seems pretty much the same test. Why gross profits rather than net income? By higher on the income statement food chain do you mean top line...

Hi Larry, "Profitability, as measured by gross profits-to-assets, has roughly the same power as book-to-market" A problem with both of these measures is they rely on book. Book is more an accounting artifact than a measure of economic reality (for example, valuable assets can be carried at...

Hi Larry, 1) Gordon model should use current dividends plus real dividend growth (rather than economic growth, due to new companies, etc). Call if 2% plus 1.5% 2) Just about every estimate of returns I see using an earnings yield uses the traditional PE1 rather than PE10. On the other hand, e/p is a...

Larry But I don't see why such illustrations usually compare portfolios that differ both in risk and in return . Wouldn't it have been better to have mixed the portfolio in such a way as to match risk, to show how much more return you can get for the same risk?[/quote] You can match standard deviat...

It is all in how you define risk. If you define risk as "the likelihood that stocks will underperform bonds", then historically the "risk" of stocks has diminished with time. If your alternative investment is bonds, then I would think this risk is pretty important to a long-term...

Bobcat2 I agree that there are 30 year time periods where stock do not do as well. This does not, however, refute the Trinity Study which shows that in the past (not the future mind you) a portfolio containing more stocks than bonds has a higher probability of success over 30 year periods based on ...

It always amazes me when I read some idiot saying that Goldman Sachs was brought down by "a 25-sigma event." Given the choice between believing they encountered luck so bad that it would happen only once in a few quadrillion universe-lifetimes, and believing that their risk models were wr...

Rick Ferri wrote:The bubble has popped and home prices are back down to their inflation-adjusted values. A home may not make a great investment, but you have to live someplace, and it beats paying rent.

Whether it beats paying rent depends entirely on the relative costs of renting a home and buying a home.

Dr Bernstein, your stuff is great, but takes me a while to figure out what you are saying, can you summarize your point about why REITS may be "mispriced"? He's not saying they are mispriced. He's saying given history, if you start with a yield of 3% your return won't be very good. Look a...

It IS noise but it isn't. The REAL question in my mind is what will the connection be between stocks and bonds when interest rates rise. It depends on why interest rates rise. The odds are high interest rates won't rise significantly until the economy improves. A better economy is generally good fo...

Risk has two dimensions. There is both the probability of a bad outcome and the magnitude of a bad outcome. The longer the holding period for stocks the higher the probability that they will achieve close to their high expected return, but what also increases with time is the small chance of a real...

Berkshire has over $30 billion in Fixed maturity securities (and billions more in cash and equity securities). $30 billion seems a large amount in a 'terrible investment'

Congratulations and thank you! congrats LadyGeek, but is this thread actionable? Lock please. :oops: Thanking LadyGeek for all her great work seems on topic for this subforum. It might also be appropriate for Forum Issues and Administration, but seems fine here. The policy is "If readers can't ...

S&P earnings growth may slow, but earnings per share will not slow at the same pace. Companies are finding that leverage is a good thing because it keep earnings per share climbing. This week Apple is borrowing money at very low rates to buy back stock. Mircosoft did the same thing last week.Th...

If you're looking at a withdrawal rate under 1%, just about any reasonably diversified asset allocation should work, but that does not mean 80/20 is the right thing for you to do. Their questionnaires appear to be designed based on the idea that risk is a psychological matter and that if you have th...

"We teach in beginning finance classes that in an efficient market, the only kind of risk that's rewarded with higher expected long-term returns is risk you can't get rid of by diversification. We call this market risk. A sensible proxy for this overall market is a portfolio of all the traded b...

Prediction is difficult and the numbers are often revised.

Inflation is well below the Fed's target - PCE was 1.2% v 2%. Cuts in government spending subtracted 0.8% from GDP. Consumer spending was up.

We are most certainly in a bubble right now, however, it is distinct from the typical investor bubble. The reason it is so distinct is that the bubble is being caused by a massive buying frenzy from the Federal Reserve to buy mortgages and treasuries. The Fed has unlimited funds and has effectively...

A bond bubble would be interest rates way out of line with fundamentals. Current interest rates seem appropriate given the current state of the economy. Rates at these levels in better times would be harder to explain.

... (I confess I am a little concerned that low yields on bonds has driven more into stocks than otherwise, and if yields rise that could be bad for stocks. But I rebalance and keep on keeping on...) I'm less concerned. Yields on bonds are not likely to rise unless the economy improves. A better ec...

I see a "wealth tax" being instituted - to pay for those who were out partying and claimed ignorance. Oddly, there are relatively few who don't save because they are out partying. The more common reason is unemployment or low paying jobs. We're currently at three unemployed per job openin...

I extract the following from the original quote: "everyone one of us, on average, will collect roughly the same number of dollars when they pass on". This is an indisputable fact. In fact, it is not that on average we will collect ROUGHLY the same amount. On average, we will all obtain EX...

Truly amazing that anyone would sell on the basis of a tweet. Why would it be any more amazing than trading on the basis of a new story on the web or TV or radio? There's been a lot of incorrect reporting on all media (recent examples include reporting on the Supreme Court decision on the healthcar...

Paul, Your risk capacity simply says you cannot take more risk than that. There is no good reason to set the amount of risk you take that high as some sort of default. It is a limit - not a suggested amount. Yes, if you are very risk averse you probably won't take an amount of risk anywhere close t...

http://www.bloomberg.com/news/2013-04-09/maybe-past-performance-does-predict-your-savings-future.html In the above article the author describes a withdrawl strategy base on Shiller PE/10 with a larger draw down in years where the PE is low and a smaller withdrawl in years when the PE is high. We kn...

A fundamental in all investing is that greater expected outcome and greater volatility, aka risk, go hand in hand. The trickier part is to evaluate such propositions as "How much risk do I have to take to have a 95% chance of having $1M in thirty years?" The point is that if the expected ...

No source of higher EXPECTED return is reliable (read: guaranteed), not stocks over bonds, or long bonds over short ones. That is not specific to this conversation. Eric People often fail to see the forest for the trees. It can be useful to point out the forest. I continue to find the term "ex...

The underlying issue is the value premium is not reliable. Value is a risk factor and sometimes gets a higher return due to higher risk. If we could clearly identify value stocks and have a high degree of confidence in their performance, then they wouldn't be riskier and therefore there would be no ...

At a large enough level, you don't need mutual funds to get diversification, trading and management expenses become a rather small fraction of portfolio value and the ability to tax manage your accounts can outweigh expenses. Plus you feel better have a complex managed portfolio rather than boring p...

I'd guess lower licensing fees.

Hang on, what about the average ~5% a year capital growth that the tax exempt fund has produced over the last 10 years? Why is SEC yield the only factor? Am I missing something? You're missing that the capital growth was due to falling interest rates. Given how low rates are today, it's hard to see...

Turbotax does not appear to know you already paid. How would it?

Sometimes the victim is rather sophisticated. For example, years ago household brand P&G sued Bankers Trust over derivatives it bought from BT. http://www.nytimes.com/1996/05/10/busin ... h-p-g.html

Duration is not a fixed value; it may decrease (positive convexity) or increase (negative convexity) as rates rise. Ordinary non-callable bonds have slightly positive convexity, because as rates rise, the present value of the earlier payments decreases less than the present value of the later payme...

Dan,

The point being that the long-term investor is better off with a large increase in rates, as your numbers illustrate.

All nominal bonds are subject to inflation risk. If one is more worried than most about inflation, investing in inflation protected securities seems the answer.

Good work!

The Vanguard Total Bond Market fund (admiral) has a yield of 1.6%, average maturity of 7.2 years and average duration of 5.3 years. Pretend the duration is 5 years, as it makes the math easier. How much will you have after 5 years and after 10 years if you invest $10,000 today in this fund in your t...

The Boglehead investment philosophy discourages speculation. It discourages buying a stock thinking it's going to go up, and selling it thinking it's going to go down. So why do we buy the market in the first place? Aren't we simply betting it's going to go up over time? If buying bonds (or annuiti...

Andrews FCU and State Department FCU also issue genuine chip & pin cards. All three default to chip & signature, but shift to chip & pin if chip & sig doesn't work. Here's a spreadsheet listing chip cards https://docs.google.com/spreadsheet/ccc?key=0Ani-u3tGk5hedGRvcE1ELVg5UmlGZk01SH...

The difference between a CD and a bond fund is essentially the difference between a bond and a bond fund. No , because you can (usually) make an early withdrawal from the CD, and the penalty is known in advance and does not depend on the prevailing interest rate. That is, CDs are free from interest...

Am I correct in assuming that if one is holding an intermediate term treasury bond fund and has a 20+ year investment horizon that the resultant dip in NAV due to increasing interest rates will eventually correct itself as maturing bonds in the fund get replaced by newly issued bonds? If you're rei...

Nis, just a question on how you do your comparisons. Do you look at CD rates with an equivalent term to the duration of a bond fund ? The difference between a CD and a bond fund is essentially the difference between a bond and a bond fund. The CD/bond has a constantly declining maturity. A 5 year C...

For things you hold in taxable, you will have to pay taxes on any dividends and capital gains that they distribute. There is really no way to avoid that. So you need to make your own comparison. What would you put in taxable instead? What would be the difference in taxes between small-cap value and...

Sunflower wrote:You forgot inheritance, owning a company and ... luck.

There is more than a little luck in inheritance and growing a successful company.

Wikipedia, source of all conventional wisdom, says most recent year's dividends divided by current price. http://en.wikipedia.org/wiki/Dividend_yield

You can send funds from a Vanguard MM account to a bank by ACH. You need some amount of paperwork to set it up and a transfer takes two trading days.

Is http://research.stlouisfed.org/fred2/ relevant? Is Shiller's web site on your list?

My question is, are theoretical risks to the tax-exempt status of municipal bonds already priced into the municipal bond funds, the same way they would be priced into a stock fund? Most probably the risks are priced in. A risk being priced in takes into account both the magnitude of the risk and th...