request for your thoughts

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larryswedroe
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request for your thoughts

Post by larryswedroe » Wed Jan 02, 2013 9:08 am

The last three years I have been writing about what Wall Street and the financial media have been pushing as "sure things". I have based it on what I have been hearing from our clients/prospects and my own reading of what the media has been talking about
As I put my list together I thought I'd ask the Bogleheads for what they are hearing as the "sure things"
Like inflation will take off along with gold because of the monetary stimulus and budget deficits. Another would be that you should stay short with bonds because rates are set to take off.
All thoughts welcomed.
Thanks in advance

I just wrote up my final scorecard on 2012s sure things so it should be up shortly--there are many in the queue so it depends on what my colleague/editor chooses to go with--and what CBS asks for
Best wishes
Larry

FillorKill
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Re: request for your thoughts

Post by FillorKill » Wed Jan 02, 2013 9:19 am

Not to imply we've seen the end of the story yet, but....

That the European Union cannot survive and the EURO currency was/is doomed to fail.

The story vacillates between near certainty [when there is a scare] to mere possibility when progress with the issues is made.

That story has been the jumping-off point for all kinds of questionable advice.

Call_Me_Op
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Re: request for your thoughts

Post by Call_Me_Op » Wed Jan 02, 2013 9:33 am

You've written about this one - that dividend stocks are a good substitute for bonds in this low rate environment.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

texasdiver
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Re: request for your thoughts

Post by texasdiver » Wed Jan 02, 2013 10:00 am

Had to read your post twice before I understood you were not looking for actual "sure things" that we know will be true but rather are just reporting on media memes. Just of the top of my head

Taxes will go up. I guess after yesterday we know that for certain now.

Health care costs will increase due to whatever reason you pick (health care inflation, Obamacare, etc.)

Americans will not save enough for retirement. We will probably see a few hundred stories about this talking about low 401(k) balances, etc.

College costs will increase at far beyond the rate of inflation

Food costs will increase due to: drought, fuel costs, population growth, etc.

Another major American city will be flooded due to climate change.

Mortgage rates will rise due to whatever reason you want to pick (inflation, deficit, etc.)

Grt2bOutdoors
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Re: request for your thoughts

Post by Grt2bOutdoors » Wed Jan 02, 2013 10:01 am

1) The use of Emerging market debt to diversify and obtain a higher yield.

2) In this continued low-rate enviornment, dividend paying equities will be in even higher demand providing both capital appreciation and yield, particularly those provided by international equities.

3) Junk bonds still have "gas in the tank".

4) One thing I've seen being sensationalized in the media particularly so during the last two weeks in particular is that defined contribution plan (401k's) performance is impacted more by fiscal policies than by actual asset allocation path.

5) Interest rates can not go any lower. The bond market rally is "long in the tooth". How long have we've been hearing this story?

6) Muni's are a safe investment.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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englishgirl
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Re: request for your thoughts

Post by englishgirl » Wed Jan 02, 2013 10:27 am

I keep hearing that becoming a landlord is the sure way to financial prosperity. Buy a townhouse or two cheap now, rent it/them out high enough to make a small operating profit, and when the mortgage is paid off, you're golden. Which seems to ignore the hard work that goes in to running a rental property, the risk of not having tenants for periods of time, or worse, bad tenants. But people are still scared off the stock market, and seem surprised when I tell them what the S&P 500 returned in 2012, because they have stuck in their heads that stocks are not going to return much going forwards.
Sarah

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Random Musings
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Re: request for your thoughts

Post by Random Musings » Wed Jan 02, 2013 10:42 am

For 2013, I have heard "sure things" (or at least better bets) are:

- Hi-Yield Bonds, they won't start going down until 2014
- Gold and Silver due to the fiscal irresponsibility
- Of course, dividend paying stocks
- "Quality Stocks" over indices, which includes some of the prior dividend paying stocks

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

Valuethinker
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Re: request for your thoughts

Post by Valuethinker » Wed Jan 02, 2013 10:50 am

englishgirl wrote:I keep hearing that becoming a landlord is the sure way to financial prosperity. Buy a townhouse or two cheap now, rent it/them out high enough to make a small operating profit, and when the mortgage is paid off, you're golden. Which seems to ignore the hard work that goes in to running a rental property, the risk of not having tenants for periods of time, or worse, bad tenants. But people are still scared off the stock market, and seem surprised when I tell them what the S&P 500 returned in 2012, because they have stuck in their heads that stocks are not going to return much going forwards.
the cap rates (net rents/ cost) in some parts of the USA must be looking pretty attractive. But what is a good rental investment (small and cheap) also puts you in the land of difficult tenants. But if you can get a cap rate 6%+ (some people say 10%) that must look pretty attractive.

Competely agree about the risks and hassle factor.

Also some big buyers like private equity and hedge funds have gone into the repossessed housing business. That probably means the prices have been pushed up to unattractive levels. How they unwind that inventory over the next few years will also be an interesting challenge.

letsgobobby
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Re: request for your thoughts

Post by letsgobobby » Wed Jan 02, 2013 10:59 am

America will never go bankrupt.

Browser
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Re: request for your thoughts

Post by Browser » Wed Jan 02, 2013 11:00 am

My absolute surest sure thing for 2013 is that interest rates will rise and bonds, particularly long maturity bonds and TIPS in particular, are the dumbest investment in history, a sure loser, overbought by rubes seeking safety as they flee to safe havens from stocks in fearful hoards, even willing to accept negative yields to do so. Of course, that's been a sure thing for the last few years and one of these years it might actually happen. I'm finally starting to believe it myself and moving out of TIPS into those high paying alternatives like 5-year CDs paying 1.5%. :confused
We don't know where we are, or where we're going -- but we're making good time.

Valuethinker
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Re: request for your thoughts

Post by Valuethinker » Wed Jan 02, 2013 11:01 am

larryswedroe wrote:The last three years I have been writing about what Wall Street and the financial media have been pushing as "sure things". I have based it on what I have been hearing from our clients/prospects and my own reading of what the media has been talking about
As I put my list together I thought I'd ask the Bogleheads for what they are hearing as the "sure things"
Like inflation will take off along with gold because of the monetary stimulus and budget deficits. Another would be that you should stay short with bonds because rates are set to take off.
All thoughts welcomed.
Thanks in advance

I just wrote up my final scorecard on 2012s sure things so it should be up shortly--there are many in the queue so it depends on what my colleague/editor chooses to go with--and what CBS asks for
Best wishes
Larry
-that interest rates have to rise at some point

- that TIPS are bad value right now

- that the US economy is stuck in a perma-depression (when the numbers actually look significantly better-- it could well surprise us on the upside this year)

- that the 'fiscal cliff' is what is bothering markets, and that they cannot make progress whilst Washington is bitter and bipartisan. In other words, no strong action from Washington re the deficit etc. might be the *best* thing for markets right now (decisive action in Europe has been associated with economic and market meltdowns)

- that given the rise of China and India, natural resource prices can only go up from here, that the rise and rise of China is inevitable

- that we have abolished risk in EM-- hence the ratings on EM debt and record low yield spreads-- that there will not be further EM crises and crashes

- that stable dividend payers and growers have had an amazing run that will continue

- that manufacturing in the US is finished and the inevitable trend is offshoring (there's been a lot of contrarian stuff on this this past year)

- that oil prices have to stay high (say $85/bl +)

- that we can safely ignore the fallout from the 'Arab Spring' and its ongoing issues in Sinai, Jordan, Syria, Yemen etc. and their potential impact on markets

- that we have seen the best of stocks performance, particularly stocks in mature developed markets like USA, Europe (there are some great Greek companies, believe it or not). You 'have' to go emerging markets etc. to get performance in the future

- that the Australian economy will keep going up in a straight line, sustaining the currency value (see also Canada and the Toronto/ Vancouver housing situation). Or in other words, that the economic rules of gravity (household debt to GDP, housing prices etc.) that hit the USA somehow do not apply to Canada and Australia. See also Turkey's current account deficit

(note some of these are contradictory, if one is true, the other is not likely to be)

scone
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Re: request for your thoughts

Post by scone » Wed Jan 02, 2013 11:01 am

Peak oil, peak water, peak everything. Overall pessimistic attitude, i.e., "we're doomed" because of (fill in the blank). Evil black swans lurking under every rock.

Meh. Hopefully the "Mayan Apocalypse" was "Peak Doom," and it's up from here. Anyway, Happy New Year! :D
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: request for your thoughts

Post by Beagler » Wed Jan 02, 2013 11:47 am

Credit rating agencies like Standard and Poors would never downgrade United States debt; there's no chance the US will ever lose its AAA credit rating.

http://tinyurl.com/3q2kjye
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

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midareff
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Re: request for your thoughts

Post by midareff » Wed Jan 02, 2013 12:31 pm

It is a sure thing that there are no sure things. It's a market, it will go up and it will go down next year. Where it ends up .... ?? Will it be up or down?? Chances are it will fool most of the people most of the time.. that may be the sure thing!

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Re: request for your thoughts

Post by HongKonger » Wed Jan 02, 2013 12:42 pm

S RIETs are where it's at.

Growth is the new value.

All eyes should be on emerging Asia in 2013.

Levett
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Re: request for your thoughts

Post by Levett » Wed Jan 02, 2013 12:50 pm

My absolute favorite, Larry, is the certainty that the United States is in a long term decline. :annoyed

Lev

larryswedroe
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Re: request for your thoughts

Post by larryswedroe » Wed Jan 02, 2013 1:38 pm

I want to thank everyone for taking the time to write their thoughts.
To be more specific looking for INVESTMENT sure things, like invest in faster growing EM was one, another high dividend payers another, interest rates stay short as rates sure to rise.

Thanks again and keep them coming
Larry

Levett
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Re: request for your thoughts

Post by Levett » Wed Jan 02, 2013 2:56 pm

Larry,

I did hear a commentator call dividend-paying stocks the "new sovereigns." :oops:

Lev

umfundi
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Re: request for your thoughts

Post by umfundi » Wed Jan 02, 2013 3:25 pm

Larry,

1. The outlook for inflation.

2. This annoying person who keeps yelling "Gold!" in my ear.

Keith
Déjà Vu is not a prediction

Valuethinker
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Re: request for your thoughts

Post by Valuethinker » Wed Jan 02, 2013 5:55 pm

larryswedroe wrote:I want to thank everyone for taking the time to write their thoughts.
To be more specific looking for INVESTMENT sure things, like invest in faster growing EM was one, another high dividend payers another, interest rates stay short as rates sure to rise.

Thanks again and keep them coming
Larry
OK then top of the list has to be that European equities are unattractive because of their economic problems.

A la the EM thing, that resource stocks will keep going (they've obviously done very poorly in 2012) on the back of China and India.

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mlewis
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Re: request for your thoughts

Post by mlewis » Wed Jan 02, 2013 6:11 pm

stocks will beat bonds in the long term (30 years)

4% withdrawal is a good safe way to go

malcolm

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grap0013
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Re: request for your thoughts

Post by grap0013 » Wed Jan 02, 2013 8:23 pm

umfundi wrote:Larry,

1. The outlook for inflation.

2. This annoying person who keeps yelling "Gold!" in my ear.

Keith
+1 to both comments

That rampant inflation is inevitable. You even hear the shoe shine guy saying, "when the government keeps printing money the only possible outcome is..."
There are no guarantees, only probabilities.

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Re: request for your thoughts

Post by FinancialDave » Wed Jan 02, 2013 11:27 pm

larryswedroe wrote:I want to thank everyone for taking the time to write their thoughts.
To be more specific looking for INVESTMENT sure things, like invest in faster growing EM was one, another high dividend payers another, interest rates stay short as rates sure to rise.
Thanks again and keep them coming
Larry
These are exactly the 3 items I would have suggested - only not "high" dividend payers in the context normally suggested - more as "solid growth" prospects for retirement income.

fd
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Re: request for your thoughts

Post by Harold » Wed Jan 02, 2013 11:51 pm

The equity risk premium is positive (i.e. one can expect a return on stocks commensurate with the risk).

That's considered such a sure thing that most participants in this forum probably take it for granted -- but there's not academic consensus on that (even considered an unsolved problem). Wall Street and the financial media certainly talk as if it's unquestionably a sure thing.

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Re: request for your thoughts

Post by umfundi » Thu Jan 03, 2013 2:31 am

grap0013 wrote:
umfundi wrote:Larry,

1. The outlook for inflation.

2. This annoying person who keeps yelling "Gold!" in my ear.

Keith
+1 to both comments

That rampant inflation is inevitable. You even hear the shoe shine guy saying, "when the government keeps printing money the only possible outcome is..."
Yes, indeed.

The talking heads that I actually pay attention to (like Vanguard) are saying the outlook for inflation is 2% declining to 1.5% or even 1% over the decade. I know their crystal ball has flat spots. At least the gloom and doom crowd is learning how to yell "Iceland!" rather than "Weimar Republic!" and "Zimbabwe!".

http://www.tradingeconomics.com/iceland/inflation-cpi

So far as gold is concerned, I have become very skeptical it has any explicit place in a rational investment portfolio. The theories about gold as a store of value or an inflation hedge hearken back to the idea of the gold standard, that gold is somehow essentially linked to monetary policy and events. It is not. Now, I am starting to doubt it is even a good proxy for commodities, compared to say lumber, oil, sugar or salt.

All I am then left with is data mining to find the optimum tilt in a Permanent Portfolio, and anecdotes about weddings in India. Not very persuasive.

By the way, Costco demands payment in fiat currency, even for essentials:

http://www.costco.com/.product.11763436.html?

Maybe it's good to visualize the discount as more than a quarter-Eagle? :P

Keith
Déjà Vu is not a prediction

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Re: request for your thoughts

Post by BHCadet » Thu Jan 03, 2013 2:58 am

Unemployment will go down because of in-sourcing.

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Re: request for your thoughts

Post by wesleymouch » Thu Jan 03, 2013 6:07 am

1. Dividend stocks. Everyone loves them
2. Interest rates will skyrocket
3. The Euro will collapse
4. China will be the next great power (reminds me of Japan in the 1980s)
5. Peak oil, resource scarcity
6. Apple stock, the road to riches

Valuethinker
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Re: request for your thoughts

Post by Valuethinker » Thu Jan 03, 2013 8:11 am

mlewis wrote:stocks will beat bonds in the long term (30 years)

4% withdrawal is a good safe way to go

malcolm
the *only* SWR is the relevant annuity rate (and you do have the credit risk, then, of the insurer). There is *no* SWR that always works (zero risk of outliving your assets), other than the annuity rate. *

Which is getting down to c. 3% for inflation linked annuities? Fixed rate annuities are not risk free (inflation risk) but I think US ones are now dipping below 7%?

(your tradeoff as an American with a fixed rate SPIA is that Social Security *is* inflation linked, so there is a distinct tradeoff there (tilt towards SS in later life) and your SS is a decent slug of money pa). And one is assuming stability in SS arrangements (eg the amount that will be taxable in the future-- don't wish to start a policy discussion).

*you could put 100% in TIPS and then make your SWR = income from that. However that implies a fluctuating level of nominal income.

No strategy hedges you perfectly against deviations in your personal inflation rate from CPI (best guess is retirees face a slightly higher inflation rate than CPI-U, perhaps +1% pa).

Levett
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Re: request for your thoughts

Post by Levett » Thu Jan 03, 2013 8:37 am

Harold wrote:


"The equity risk premium is positive (i.e. one can expect a return on stocks commensurate with the risk).

That's considered such a sure thing that most participants in this forum probably take it for granted -- but there's not academic consensus on that (even considered an unsolved problem). Wall Street and the financial media certainly talk as if it's unquestionably a sure thing."


Oh, yeah. It's in the bag. :wink:

Lev

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Re: request for your thoughts

Post by hazlitt777 » Thu Jan 03, 2013 8:45 am

larryswedroe wrote:The last three years I have been writing about what Wall Street and the financial media have been pushing as "sure things". I have based it on what I have been hearing from our clients/prospects and my own reading of what the media has been talking about
As I put my list together I thought I'd ask the Bogleheads for what they are hearing as the "sure things"
Like inflation will take off along with gold because of the monetary stimulus and budget deficits. Another would be that you should stay short with bonds because rates are set to take off.....
Larry
Since this is a form of financial media, I would add....

That no matter what the national debt, the annual national deficit, or what is happening politically, simply being diversified into stocks, bonds and TIPs will provide adequate diversification and protection.

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Re: request for your thoughts

Post by Leesbro63 » Thu Jan 03, 2013 9:06 am

See my other current post. Many financial writers considered a severe reduction in the estate exemption amount to be a sure thing. They wrote pieces urging "serious action" by 12/31/12 to avoid it.

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Re: request for your thoughts

Post by Leesbro63 » Thu Jan 03, 2013 9:08 am

Other "sure things" that I've noticed are specific political predictions related to money. As in a President with a certain philosophy will be bad for the market and one with a different philosophy will be good. I am NOT getting political. Just pointing out that assumptions about what certain political turns will do to the markets have proven to be folly.

Valuethinker
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Re: request for your thoughts

Post by Valuethinker » Thu Jan 03, 2013 9:48 am

wesleymouch wrote:1. Dividend stocks. Everyone loves them
2. Interest rates will skyrocket
3. The Euro will collapse
4. China will be the next great power (reminds me of Japan in the 1980s)
Beware of false analogy. Japan was a developed economy when it blew up. China has many similar characteristics (financial bubble etc.) but it is still a developing country. If China keeps growing at 5-6% pa then it *still* becomes the world's largest economy-- and that is half the growth rate of the last 20 years. As to being a great power, it depends on definition, because it will undoubtedly be more influential in world affairs than it is now (which is very small influence right now). In Africa, you already feel that shift-- Chinese investors calling the shots, not US.

I doubt China is just going to stop growing. I believe that it is more likely to grow at 5% pa than 10%-- but that is still roughly a doubling in per capita GDP every 18-20 years. China's crisis doesn't really hit until the 2030s (I think that's the date), when the working age population starts to shrink. In other words, the current banking/ property bubble will blow, they will stagger (as they have before) and keep going.
5. Peak oil, resource scarcity
Courtesy of some quite bullish forecasts out there about US shale oil production, the consensus right now is the US is going to become oil independent (including Canada and Mexico). So actually the prevailing wisdom in *financial* markets right now is more the other way.

(on the internets you might get a different view, but that's not what is being said in boardrooms and by respected economists and think tanks).

The implication for oil prices could be quite bearish-- supply and demand are quite inelastic, and there is a lot of supply coming on track (as we have seen with US natural gas prices in last 2 years).
6. Apple stock, the road to riches
Again that might be an 'internet' view. In the market, a lot of people were gunning for AAPL to go down, which is why it has so violently. What happened is that AAPL so outperformed all other tech companies that fund managers have scrambled to be up to market weight-- thus creating a bubble/ momentum effect, a mini TMT bubble. But there have been a number of bearish analysts out there.

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Re: request for your thoughts

Post by Valuethinker » Thu Jan 03, 2013 9:51 am

umfundi wrote: All I am then left with is data mining to find the optimum tilt in a Permanent Portfolio, and anecdotes about weddings in India. Not very persuasive.
Actually the Indian retail market is a *bear* argument for gold. The world's largest retail buyers had cut back sharply, because they find gold jewelry to be too expensive. Also India is having a recession.

you could argue that the smartest money has moved to 'sell' on gold.

Gold does tend to fluctuate with political disruption. If you are an Iranian merchant, holding your money in Iranian cash is not attractive.

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Re: request for your thoughts

Post by Angst » Thu Jan 03, 2013 10:44 am

Valuethinker wrote:-that interest rates have to rise at some point
...and will so sooner than later.

+1

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SurfCityBill
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Re: request for your thoughts

Post by SurfCityBill » Thu Jan 03, 2013 2:49 pm

Healthcare related companies will experience explosive growth due to the aging boomers.

Housing values are poised to grow substantially as the economy strengthens, the jobless rate decreases, the cost of buying outweighs the cost of renting, and the population continues to grow.

"Re-shoring", the buzz word for bringing manufacturing jobs back to America will turn out to be a fantasy.

Beer consumption will continue to decrease.

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Sbashore
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Re: request for your thoughts

Post by Sbashore » Thu Jan 03, 2013 3:07 pm

What has jumped out at me over the last few years are the advertisements touting gold as the way to keep your money "safe". One of the most egregious ads I heard on the radio here in the Phoenix area is an interview with a presumably elderly lady who bought gold so that she could keep some of her funds "safe". She was doing that because she was on a fixed income and needed to "stretch her budget". I cringe every time I hear that ad. I'm not passing judgement on gold or any other precious metal as a suitable investment, but it is being pushed as a panacea.

I also hear a lot of radio commercials for EIA being the cure for the volatility of the stock market. They make it sound like equity investing is a suckers bet.

Just a couple of things that come to mind.
Steve | Semper Fi

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Re: request for your thoughts

Post by umfundi » Thu Jan 03, 2013 3:13 pm

Sbashore wrote:I also hear a lot of radio commercials for EIA being the cure for the volatility of the stock market. They make it sound like equity investing is a suckers bet.
What is EIA?

Keith
Déjà Vu is not a prediction

Levett
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Re: request for your thoughts

Post by Levett » Thu Jan 03, 2013 4:15 pm

Equity Indexed Annuity.

Lev

letsgobobby
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Re: request for your thoughts

Post by letsgobobby » Thu Jan 03, 2013 4:43 pm

larryswedroe wrote:I want to thank everyone for taking the time to write their thoughts.
To be more specific looking for INVESTMENT sure things, like invest in faster growing EM was one, another high dividend payers another, interest rates stay short as rates sure to rise.

Thanks again and keep them coming
Larry
US treasuries are a risk free invesment.

athrone
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Re: request for your thoughts

Post by athrone » Fri Jan 04, 2013 12:33 pm

letsgobobby wrote:America will never go bankrupt.
letsgobobby wrote:US treasuries are a risk free invesment.
+1

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Sbashore
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Re: request for your thoughts

Post by Sbashore » Fri Jan 04, 2013 12:39 pm

athrone wrote:
letsgobobby wrote:America will never go bankrupt.
letsgobobby wrote:US treasuries are a risk free invesment.
+1
Inflation risk?
Steve | Semper Fi

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gotherelate
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Re: request for your thoughts

Post by gotherelate » Fri Jan 04, 2013 1:26 pm

Indexed Universal Life (IUL) - the greatest thing since sliced bread :wink:
-Grandpa | I'd rather see where I'm going than see where I've been.

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nedsaid
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Re: request for your thoughts

Post by nedsaid » Sat Jan 05, 2013 1:19 am

I am at a tipping point on tipping points.

It is a much overused phase.
A fool and his money are good for business.

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Spades
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Re: request for your thoughts

Post by Spades » Sat Jan 05, 2013 8:07 am

1) Now is the time to to invest in the real estate market as a land lord, because of the low prices.

2) Gold will always be a hedge against high inflation.

3) If you pick the right stocks, you will win big.

Hope this is helpful.

:sharebeer

af895
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Re: request for your thoughts

Post by af895 » Sat Jan 05, 2013 8:42 am

I keep hearing "big, blue chip dividend payers offering dividend reinvestment plans (DRIPs) have been around for fifty years and keep increasing dividends, so they're safe bets." (Abbott Labs, McDonald's, Proctor & Gamble, Coca Cola etc)

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Re: request for your thoughts

Post by cp73 » Sat Jan 05, 2013 10:44 am

What I gather from all these posts is a well diversified portfolio...

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Re: request for your thoughts

Post by sschullo » Sat Jan 05, 2013 11:26 am

Two certainties:
1. Vanguard will continue growing assets as more investors learn the Boglehead way. In the next ten years, it should have $4-5 trillion.
2. There will always be stock market uncertainty somewhere, someplace and that location is always an unpredictable moving target.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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Peter Foley
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Re: request for your thoughts

Post by Peter Foley » Sat Jan 05, 2013 12:03 pm

Congressional action to address deficit issues will cause the stock market to boom. This will also result in a surge in hiring which will further boost the market.
Failure of Congress to address deficit issues will cause the market to crash.

allocator
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Re: request for your thoughts

Post by allocator » Sat Jan 05, 2013 9:37 pm

The next sure thing (from The Economist, 12/22/12):

http://www.economist.com/news/leaders/2 ... costs-star

Hmm . . . maybe they're on to something.

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