When stocks and bonds drop at the same time, what do you do?

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artking99
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When stocks and bonds drop at the same time, what do you do?

Post by artking99 » Wed Oct 10, 2018 3:29 pm

Last time this happens, it was around 08 financial crash.

alex_686
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Re: When stock and bod drop at the same time, what do you do?

Post by alex_686 » Wed Oct 10, 2018 3:34 pm

What does your IPS state? Personally, mine says to stay pat.

Why does this matter? Specifically, what is your risk tolerance? If you have a low capacity to take risks it suggests that you should move into bonds and increase your savings.

But that is all about all one can say. It is a complex question based on your goals, return requirements, and risk tolerance. Just make sure you figure it out before the next crisis.

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Re: When stock and bod drop at the same time, what do you do?

Post by randomizer » Wed Oct 10, 2018 3:35 pm

Nothing. Not a very exciting reply, but investing isn't supposed to be exciting.
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Re: When stock and bod drop at the same time, what do you do?

Post by delamer » Wed Oct 10, 2018 3:36 pm

You still rebalance as needed, depending on your target asset allocation.

It is not likely that both will decline by the same percentage.

If stocks are down 10% and bonds are down 5%, you’d be buying stocks.

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Re: When stock and bod drop at the same time, what do you do?

Post by Phineas J. Whoopee » Wed Oct 10, 2018 3:37 pm

What I personally do is keep in mind stocks and intermediate-term investment-grade bonds have had approximately zero correlation, which is not the same as negative, and that we've discussed it here before.
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Re: When stock and bod drop at the same time, what do you do?

Post by GoldenFinch » Wed Oct 10, 2018 3:40 pm

You need to fix your title before the jokesters start to joke around. (A lot to work with there.) LOL

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Re: When stock and bod drop at the same time, what do you do?

Post by retiredjg » Wed Oct 10, 2018 3:59 pm

If the ratio gets too far out of whack I would rebalance back to my intended target. Otherwise, nothing.

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Re: When stock and bod drop at the same time, what do you do?

Post by FelixTheCat » Wed Oct 10, 2018 4:08 pm

You can buy more stocks and their new discounted prices.
Felix is a wonderful, wonderful cat.

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Re: When stock and bod drop at the same time, what do you do?

Post by KlangFool » Wed Oct 10, 2018 4:10 pm

OP,

1) Nothing.

2) A better question to you is why do you think that we have to do something?

3) And, if we do not have to do anything but you feel like you have to, why there is a difference?

KlangFool

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Re: When stock and bod drop at the same time, what do you do?

Post by Jordan4FI » Wed Oct 10, 2018 4:12 pm

buy buy buy, till it is time to sell sell sell in retirement... you are either in the market or you are out... thats it. if you are retired and both do down, you don't go out to eat for a while..

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Re: When stock and bod drop at the same time, what do you do?

Post by oldcomputerguy » Wed Oct 10, 2018 4:15 pm

Big picture:

If it's been a year since I rebalanced, I look at my IPS, note the asset allocation, look at where things are now, and do whatever it takes to bring my AA back to spec.

If it's been less, I do nothing.

Subtext:

If I notice that something is more than 5% out of desired allocation percentage, I'll rebalance even if it hasn't been a year yet.
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Re: When stock and bod drop at the same time, what do you do?

Post by dogagility » Wed Oct 10, 2018 4:25 pm

Stay the course and stop listening to the talking heads.
Taking "risk" since 1995.

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Re: When stock and bod drop at the same time, what do you do?

Post by DesertDiva » Wed Oct 10, 2018 4:29 pm

Nothing but review and re-read the Bogleheads investment philosophy:
https://www.bogleheads.org/wiki/Boglehe ... philosophy
♫ Stocks go up ♫ Stocks go down ♫ Stocks go up ♫ Stocks go down ♫ - Second verse same as the first

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Re: When stock and bod drop at the same time, what do you do?

Post by jdsky » Wed Oct 10, 2018 4:32 pm

Jordan4FI wrote:
Wed Oct 10, 2018 4:12 pm
buy buy buy, till it is time to sell sell sell in retirement... you are either in the market or you are out... thats it. if you are retired and both do down, you don't go out to eat for a while..
This is the part of retirement planning that continues to baffle me when counting on market returns to pay the bills. Ok, so your bond returns are negative, your stock returns are negative, so you now adjust your lifestyle negatively in response. Anyone else concerned that at some point in retirement this might last for a decade or two? For some people that time frame might encompass the entirety of their remaining years.

From my perspective I think at some point in time set a fairly strict goal for yourself. Leverage the markets to reach that goal and from that point on accept lower returns in order to maintain a steady diet and an expected lifestyle. This is exactly what I did. I have some confidence that it will work but seems to be a bit unpopular as it takes what most seem to say is an over conservative approach to investing.

In an attempt to make my approach a bit more clear. Once you near retirement get a handle on your expected expenses. To that number add 10 or 20%. Multiply that number by 30X and save your behind off to get as close to that number as possible or at least to a point where the window to retirement is long enough that you can begin to look at reaching that goal with non-market based returns. Again, that is what I am doing now. Not for everyone but for our age, style and expectations I think it will end up working for us.

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Re: When stock and bod drop at the same time, what do you do?

Post by LadyGeek » Wed Oct 10, 2018 4:36 pm

GoldenFinch wrote:
Wed Oct 10, 2018 3:40 pm
You need to fix your title before the jokesters start to joke around. (A lot to work with there.) LOL
I changed the thread title to "When stocks and bonds drop at the same time, what do you do?".
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Re: When stock and bod drop at the same time, what do you do?

Post by Jordan4FI » Wed Oct 10, 2018 4:43 pm

jdsky wrote:
Wed Oct 10, 2018 4:32 pm
Jordan4FI wrote:
Wed Oct 10, 2018 4:12 pm
buy buy buy, till it is time to sell sell sell in retirement... you are either in the market or you are out... thats it. if you are retired and both do down, you don't go out to eat for a while..
This is the part of retirement planning that continues to baffle me when counting on market returns to pay the bills. Ok, so your bond returns are negative, your stock returns are negative, so you now adjust your lifestyle negatively in response. Anyone else concerned that at some point in retirement this might last for a decade or two? For some people that time frame might encompass the entirety of their remaining years.

From my perspective I think at some point in time set a fairly strict goal for yourself. Leverage the markets to reach that goal and from that point on accept lower returns in order to maintain a steady diet and an expected lifestyle. This is exactly what I did. I have some confidence that it will work but seems to be a bit unpopular as it takes what most seem to say is an over conservative approach to investing.

In an attempt to make my approach a bit more clear. Once you near retirement get a handle on your expected expenses. To that number add 10 or 20%. Multiply that number by 30X and save your behind off to get as close to that number as possible or at least to a point where the window to retirement is long enough that you can begin to look at reaching that goal with non-market based returns. Again, that is what I am doing now. Not for everyone but for our age, style and expectations I think it will end up working for us.
Exactly... set your annual budget as low as possible to survive and live decent. Then save and invest as much as you can until you walk away from the need to work. With that if you only need 20K to survive, but you invest and earn 40K then you have room to wiggle and reinvest for the future... also, you can get a job if you are able to offset the down times of the market.. There are many ways to do this, I just dislike to see everyone make it such a difficult thing.. its a such a privilege to be able to save and invest.. most forgot about that part...

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Re: When stocks and bonds drop at the same time, what do you do?

Post by nisiprius » Wed Oct 10, 2018 4:47 pm

At the time of the 2008 crash, the particular stocks I was holding consisted of those held by the Vanguard Total Stock Market Index Fund (blue) and the Vanguard Total International Stock Index Fund (orange). The particular bonds I was holding consisted of those held by the Vanguard Total Bond Market Index Fund (green).

I'm not going to go in and analyze the short-term details day by day, but my overall description, which corresponds to the way I experienced it in at the time, was not that stocks and "bonds" dropped at the same time. My experience was that stocks dropped and bonds held steady. I wasn't troubled by what happened to my bonds at all. My bond holdings made money pretty steadily all through the financial crisis. Not much, and not strictly up all the time, but pretty steadily.

When you say that "stocks and bonds drop[ped] at the same time... at around [the time of] the 2008 financial crash," what kind of "bonds" are you referring to? Did you experience this yourself, did you find it in the data for yourself? Or did you read it somewhere, and if so, where?

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Re: When stock and bod drop at the same time, what do you do?

Post by KlangFool » Wed Oct 10, 2018 4:51 pm

jdsky wrote:
Wed Oct 10, 2018 4:32 pm
Jordan4FI wrote:
Wed Oct 10, 2018 4:12 pm
buy buy buy, till it is time to sell sell sell in retirement... you are either in the market or you are out... thats it. if you are retired and both do down, you don't go out to eat for a while..
This is the part of retirement planning that continues to baffle me when counting on market returns to pay the bills. Ok, so your bond returns are negative, your stock returns are negative, so you now adjust your lifestyle negatively in response. Anyone else concerned that at some point in retirement this might last for a decade or two? For some people that time frame might encompass the entirety of their remaining years.

From my perspective I think at some point in time set a fairly strict goal for yourself. Leverage the markets to reach that goal and from that point on accept lower returns in order to maintain a steady diet and an expected lifestyle. This is exactly what I did. I have some confidence that it will work but seems to be a bit unpopular as it takes what most seem to say is an over conservative approach to investing.

In an attempt to make my approach a bit more clear. Once you near retirement get a handle on your expected expenses. To that number add 10 or 20%. Multiply that number by 30X and save your behind off to get as close to that number as possible or at least to a point where the window to retirement is long enough that you can begin to look at reaching that goal with non-market based returns. Again, that is what I am doing now. Not for everyone but for our age, style and expectations I think it will end up working for us.
jdsky,

<< Once you near retirement get a handle on your expected expenses. To that number add 10 or 20%. Multiply that number by 30X>>

Let the expected expense = Y.

A) 10% more = 1.1Y. 30 times of that = 30 X 1.1Y = 33Y

B) 20% more = 1.2Y. 30 times of that = 30 X 1.2X = 36Y

So, your approach is equivalent to 3% SWR or 2.5% SWR of your portfolio. Or, make your portfolio at 33X or 36X of your expected expense.

<< Leverage the markets to reach that goal and from that point on accept lower returns in order to maintain a steady diet and an expected lifestyle. This is exactly what I did. >>

I save 1 year of expense every year. I can reach my FI goal in 25 years with about 0% real return. I believe that I am a lot more conservative than you.

KlangFool

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Ged » Wed Oct 10, 2018 4:52 pm

Usually bonds don't go down as much as stocks. So if you re-balance you would be likely to buy stocks.

For example today VTI went down 3.18%, BND 0.077%.

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Re: When stock and bod drop at the same time, what do you do?

Post by midareff » Wed Oct 10, 2018 4:53 pm

randomizer wrote:
Wed Oct 10, 2018 3:35 pm
Nothing. Not a very exciting reply, but investing isn't supposed to be exciting.
+1

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Mr. Jelly » Wed Oct 10, 2018 5:02 pm

As I am next to retired I have invested for this to happen. VTINX. More or less. Everyone knew this was coming. If not this year than next. I looked for advice on what I could do that would be better and couldn't figure it out. Now all most of us can do is ride it out. Advise like it's a good time to buy sounds disingenuous as most that are looking for advise would have to sell things to buy things. I'll watch to see how it all works out and hopefully learn what would have been a better way to stage for an environment in which we find ourselves.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by retiredjg » Wed Oct 10, 2018 5:11 pm

nisiprius wrote:
Wed Oct 10, 2018 4:47 pm
I'm not going to go in and analyze the short-term details day by day, but my overall description, which corresponds to the way I experienced it in at the time, was not that stocks and "bonds" dropped at the same time. My experience was that stocks dropped and bonds held steady.
Looking at the $10k growth chart in Morningstar, total bond market did drop a little in the last unpleasantness. But it was so little that "holding steady with tiny bit of a dip early on" is a pretty accurate description in my opinion.

I'm not sure other bond funds did so well. Low quality bonds and the "core plus" actively managed bond funds had much bigger drops from what I've seen.

There was much discussion about both stocks and bonds dropping at the time. But I would compare it to falling off a footstool vs falling off a tall ladder. Yes, they both dropped, but on different orders of magnitude. Nevertheless, the headline of "stocks and bonds are both failing" has survived in people's minds even though it is not an accurate way of seeing it.

Your chart is a great example of how bonds can make more money than stocks for years at a time. Many younger people just can't wrap their heads around this yet so many of them will have to learn the lesson the hard way.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by triceratop » Wed Oct 10, 2018 5:12 pm

artking99 wrote:
Wed Oct 10, 2018 3:29 pm
Last time this happens, it was around 08 financial crash.
I think it happened earlier this year too, in January/February. At the time, I did nothing special.
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Re: When stocks and bonds drop at the same time, what do you do?

Post by inbox788 » Wed Oct 10, 2018 5:21 pm

Put on a little makeup, makeup
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Re: When stocks and bonds drop at the same time, what do you do?

Post by livesoft » Wed Oct 10, 2018 5:52 pm

I always rebalance as per my IPS. I have no hesitation to sell bond fund shares if they drop and I need the money to rebalance into equities. I have no hesitation to sell equity funds shares if they drop and I need money to rebalance into bonds.

I have remarked on this a few times on the forum. If one cannot rebalance into the face of losses, then perhaps their asset allocation is not what it should be.
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Re: When stocks and bonds drop at the same time, what do you do?

Post by goodenyou » Wed Oct 10, 2018 6:15 pm

This is a Bogle "don't do something, just stand there" moment. Good things happen slowly, and bad things happen fast.

It's time for idioms.
Last edited by goodenyou on Wed Oct 10, 2018 6:17 pm, edited 1 time in total.
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Re: When stocks and bonds drop at the same time, what do you do?

Post by 2015 » Wed Oct 10, 2018 6:17 pm

As I've engaged in liability matching, I don't pay attention to what my risk portfolio is doing. I am getting real real itchy to TLH. I've got some serious tax obligations I need to offset.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by RadAudit » Wed Oct 10, 2018 6:25 pm

The fun thing about this situation is by the time you figure out it's more than a correction (>10% drop in stocks), you are fairly close to a bear market (20%). And then, you have to concern yourself with how far is it going to drop this time. Or, more to the point, how much are you going to lose before you can't take it any more?

You really need a good handle on your risk tolerance - which changes over time - and the discipline to follow your plan. Best of luck.
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Re: When stocks and bonds drop at the same time, what do you do?

Post by J295 » Wed Oct 10, 2018 6:32 pm

"Drop at same time ..."

Today
SPY down 3.17%
Bnd down 0.08%

2008
SPY down 37%
Barclay Aggregate Up 5.24%

Nothing to do per our IPS. We'll check AA at the end of year (we check quarterly).

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Earl Lemongrab » Thu Oct 11, 2018 1:50 am

Less likely to have enough spread to hit the rebalancing ranges. I don't try to time the markets.
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Re: When stocks and bonds drop at the same time, what do you do?

Post by steve321 » Thu Oct 11, 2018 3:43 am

I got out of bonds - fast. To paraphrase Buffett, there are 3 ways to lose money: 'liquor, ladies and bonds'. With the first two it's not sure you'll lose money, with bonds it is.
I have 60% equities and 40% CDs.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by steve321 » Thu Oct 11, 2018 3:58 am

nisiprius wrote:
Wed Oct 10, 2018 4:47 pm
At the time of the 2008 crash, the particular stocks I was holding consisted of those held by the Vanguard Total Stock Market Index Fund (blue) and the Vanguard Total International Stock Index Fund (orange). The particular bonds I was holding consisted of those held by the Vanguard Total Bond Market Index Fund (green).

I'm not going to go in and analyze the short-term details day by day, but my overall description, which corresponds to the way I experienced it in at the time, was not that stocks and "bonds" dropped at the same time. My experience was that stocks dropped and bonds held steady. I wasn't troubled by what happened to my bonds at all. My bond holdings made money pretty steadily all through the financial crisis. Not much, and not strictly up all the time, but pretty steadily.

When you say that "stocks and bonds drop[ped] at the same time... at around [the time of] the 2008 financial crash," what kind of "bonds" are you referring to? Did you experience this yourself, did you find it in the data for yourself? Or did you read it somewhere, and if so, where?

Source

Image
This time stocks are falling arguably because of rising yields, so that math implies that bonds are falling too. In 2008 yields instead dropped as a consequence of the crisis, which made bonds go up in value.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by hudson » Thu Oct 11, 2018 1:35 pm

I didn't do anything. I never rebalance; I don't have a written plan. I thought briefly about buying some of a total stock market fund but decided not to.
I believe that stocks are high risk; Intermediate AAA/AA bond funds/ETFs/CDs are a good place to be.
I did look at tax loss harvesting; I'm not sure if and when I'll make a move.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by jdsky » Thu Oct 11, 2018 4:05 pm

steve321 wrote:
Thu Oct 11, 2018 3:43 am
I got out of bonds - fast. To paraphrase Buffett, there are 3 ways to lose money: 'liquor, ladies and bonds'. With the first two it's not sure you'll lose money, with bonds it is.
I have 60% equities and 40% CDs.
Good to hear someone else shares my view of bonds. Watching bonds continue to drop while CD rates continued to rise finally pushed me to liquidate all of mine as well. It also didn't hurt that I had reached a major goal early with the market returns we all enjoyed so it all went into an 18 month ladder.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by rmelvey » Thu Oct 11, 2018 4:08 pm

This is the kind of environment that is the achilles heel of risk parity portfolios. The only place to hide when the Fed is tightening is in short term high quality debt. This is the lowest performing asset class in the long term though. Our whole financial system is premised on risk assets outperforming short term debt over the long run. I plan to just ride it out.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by celia » Thu Oct 11, 2018 4:10 pm

Let's switch it around:

When stocks and bonds RISE at the same time, what do you do?

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Nate79 » Thu Oct 11, 2018 4:24 pm

Nothing.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by zengolf2011 » Thu Oct 11, 2018 8:50 pm

When I was in the accumulation phase, during stock market drops I bought as many shares in stock funds as I could afford. I didn't sweat bond fund dips.

Now I'm in the distribution phase, and I can tell you the two phases are totally different. Now that I face Required Minimum Distributions, I maintain a 3-year CD ladder just for this situation. I always withdraw from the best performing asset -- and if that's my CD stash, so be it. I'll replenish them when markets recover. If the markets really, really tank, I reinvest RMDs in my taxable account, so I'm never withdrawing during a substantial (greater than 10%) drop in my portfolio. One of my goals is to avoid turning a paper loss into a real loss.

I second-guess myself all the time, but never act on these emotions. I've often felt foolish when I saw the lower returns I've had to accept with my short-term CDs when stocks (and bonds) were rising. But for the past two days, I've been pretty thankful for my "crash stash."

Not an investing pro (by any stretch of the imagination), but this is just what I do. I hope this provokes a thought process that is helpful for you.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Elysium » Thu Oct 11, 2018 9:01 pm

I am being told AQR has some low or negative correlation fund called QSPIX which doesn't behave the same way as stocks or bonds, but have bond like volatility with stock like returns. That should be going up now.... Oops sorry, just checked, have to take it back:
http://quotes.morningstar.com/chart/fun ... ture=en_US

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Soon2BXProgrammer » Thu Oct 11, 2018 9:13 pm

i buy whatever i'm lowest on to get back to my target allocation.

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Re: When stocks and bonds drop at the same time, what do you do?

Post by Artsdoctor » Fri Oct 12, 2018 4:05 pm

Artking,

Remember, you're always going to have a safe haven of some sort to pay your routine bills so hopefully when you're talking about stocks and bonds, you're talking about money you don't need right now. Investments, by definition, refer to future returns, not current returns. If both equities and fixed income are plummeting, you're still going to maintain your asset allocation provided it was the correct one for you to begin with.

It is true that some investors believe that the Number One rule in investing to "above all, not lose money." I've always been perplexed by this; it's a noble goal, but it's not reasonable. In the long run, you'd like to think that you'll come out ahead but a lot can happen along the way. If you can't make you peace with that, then you can always invest in CDs and treasuries--but you'll have to invest to maturity and hope that inflation won't cause "real" losses.

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