100% bonds, says some guy

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Triple digit golfer
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100% bonds, says some guy

Post by Triple digit golfer »

What do you think of what this guy has to say:
Oh boy. IF "buy and hold" were not speculation then I could buy a put option ten years in the future cheaper than I could buy one for next month.

Pension funds that invested in stocks are in ruins. Pension funds that were in bonds run surpluses.

Stocks are higher risk than bonds and only have theoretical highers returns because of taxes and fees and a long list of other things that I would be glad to explain to you if you are interested.

There are very few periods of time where stocks worked for retirement. And that bubble bursts when the Baby boomers retire. What drives a stock price up in the most general sense? Dividends. Historically the dividend yields are reinvested and THAT is what drove the stock prices up. The brokerage houses and investment firms trade these stocks back and forth buying and shorting often at the same time and the crowds see the returns and rush to ad to their retirement accounts only too see them emptied by downturns. So businesses now want to put the people in control of their own pensions but humans have the extraordinary knack for buying high and selling low.

Most people will never make their own retirement according to the buy and hold strategy because they don't have the perfect time line. Many of those who retired this past year are going to have massive shortfalls and end up working in Wal-Mart.

Here is a simplistic math problem on buy and hold investing. You have start out with $100 and the market goes up 50%. Now you have $150. But before you retire the market goes down 50%. Now you have $75.

OK, lets change he timing. You have $100. The market goes down 50%. Now you have $50. So the market now goes up 50%. Now you have $75. See how you end up the same no matter which side you get in on?

So why not remove all of the risk you can at a similar return and go all highly rated bonds? I do this stuff for a living and all my retirement is in bonds. I wouldn't risk my well being in my old age to equities. Have you heard the saying that the smart money is in bonds? The dirty little secret is this. Bonds actually outperform stocks and are much safer. Don't tell anyone. The bond folks like to make it seem really shrouded in complexity.
In the below quote, the items he has in quotation marks are responses I made to him that he's referencing and then responding to. Some of them may not make sense because you're only seeing one side of the conversation, but see what you think of what he says anyway:
"To the tune of over 10% per year since 1926."

That is theoretical and the "real" number for actual investors is closer to 6%. But they can't "sell" you by giving the actual returns data so the go with the 10% and you buy what they are selling. I proved that the 10% is a myth with the put option. Explain to me, if the returns are so good, why a put option with a constant strike costs more the further in the future I go even if I go 30 years?

"but buying a diversified fund"

The real data shows that a fund vs a dart board vs a monkey will get the same returns on average. The fact of the matter is the longer your time frame the greater the chance of something bad happening to your investments. Try to find a 30 year period that you didn't have to have perfect timing to enjoy the results that you are touting. Don't take too long looking because there is only one and very few people caught that perfect wave.

You are giving me the standard sales boilerplate that brokers give to investors to ensure more money coming into the game for the big boys to play with and not actually produce anything.

"and interest rates will begin to decline"

I told you "zero-coupon non-callable". That is how you get an equal return and lower risk.

"individual companies and even sectors will fail"

Buy bonds that can't fail unless the world goes boom. Face it, if the world goes boom then we are all in a world of #$%^. I will point you in the right direction. Start in the state of Texas.

"A good rule of thumb for an average investment portfolio? Age in bonds"

That is terrible advice. Absolutely terrible. If you knew what really going down on the trading floors you would be petrified of stocks as a retirement tool. Do you honestly think that these crashes just happen and that the money just disappears? The reason the stocks go up is not the production (and I can show you why) but because they pump the market and get more investors to pour money in. They move it up and down at will and then when the new money coming in slows because production is slowing there is a crash and investors can't get their money back because there was "wealth destruction". But here is a secret...it is all BS. When you make a stock bet and lose, SOMEONE ELSE WINS. The house.

Greedy money goes for the promise of the higher return (as you are doing and you parrot their sales pitch). But there is only a higher return if the companies actually produce something new. There has to be constant development of new products. But the products have to have a practical use and add to the wealth of the nation materially.

But the greedy money seeking the higher returns was promised percentage points on financial instruments. They were shown this fund or the other. For every successful fund there are hundreds of failures from the same group. And when an anomaly occurs in the market the quickly retro fit a plan and explain how their models forecast whatever returns and the greedy people buy it. So the financials siphon off some of the money from, say, manufacturing or pharma, with this promise of a higher return. But just as the chemical company has to come up with something new so do the financials.

Well a little deregulation goes a long way in helping that. How? By allowing them to develop new products. Before you could bet on stock, futures etc. Now through derivatives you can bet on the bets. They can securitize bad loans and put a high return advert on them and you can bet on them. But the game is tricky because the house can also bet on the bets and they will get your money in, then bet against you. Your brokerage will buy stock for you and then SHORT YOUR STOCKS. The hedge funds and investment banks securitized debt, sold tht debt to banks then bet against them.

The depleted 401Ks and pension funds did not have wealth destroyed...the free marketers redistributed it to themselves.

"I don't think there's a better method out there for retirement investing"

I gave you one. 100% bonds is proven to be the soundest investment and very little can destroy your golden years. You only get one shot at this. Don't be played by the gamers. "Buy and hold" is the worst thing you could possibly do with your money because the longer you hold the bigger chance you are going to lose. When done right you can get the same or better return from bonds at much lower risk. That is why the smart money is in bonds.

"That $825,000 should last them several years at which time, their 35% in stocks should have appreciated already."

That is a big assumption on your part. I bet it will not happen over the next 7 years. If I am right then what?

"That's flat-out wrong."

I guarantee you my portfolio is outperforming yours. Guarantee it!

"Would you have made such an outrageous claim in 1999?"

I would have done as I have done now and made the timing argument. How many started in 1982 and retired in 1999? Oh to be that lucky. How about those that retired in 1988? 2001? 2007? How about those that bought and held over that 30 year period where the market stayed around 1000?

In case you haven't noticed the catalyst for higher stocks was high dividends from the big companies. That dynamic is gone and it is a wise man who understands what that means and why stocks are now a very bad idea and were only a good idea before if you were lucky enough to have perfect timing. Think about the dividend remark I just made. It could be worth lots of money if you understand it.

I am not trying to sell you any services like a broker. I have nothing personal to gain by giving you this information. But I know the game very well and I think it is immoral what they are doing by pumping your head full of the stocks. You repeat the mantra well but you don't understand how you are being played. Past performance is one thing but they are very selective in what data they give you and how they present it. And they certainly do not explain how the economy works and how their modeling is really designed to enrich them at your expense and how they really don't care if you can retire or not when that time comes. Why? Because there will be another truck load of sheep to shear and they know that the voice of people like me who used to be on the inside is no match for their constant barrage of adverts and testimonials and promises of high returns. The greedy will buy it. You think that everyone who just lost lots of money in this crash is ignorant. If (or when) it ever happens to you I will be more kind.
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Post by nisiprius »

Wow, and I thought I was extreme. What a relief to see there are people who go further than I do.

Beware the enthusiast. Anyone who proposes 100% of anything--as a serious investment plan, not as a thought experiment or a hypothetical--has a bee in his or her bonnet.

Just my $0.02. My philosophy is "plan as if you were going to invest 100% bonds, but don't really invest that way."

Plan for 100% bonds--that is, plan on the basis of historical returns from bonds. Yes, you're allowed to assume that TIPS exist when you do this. I say this because I'm convinced there's a coterie of stock boosters who "spin" things by comparing stocks with nominal bonds and never even acknowledging the existence of TIPS.

Plan for 100% bonds, because, even over as much of the "long run" as an individual can manage, stocks may not do any better than bonds. I was mentioning this as a theoretical possibility before the crash of 2008, but now everyone knows that it really happened.

The mischief comes when people believe that they can get the risk premium without the risk, and that stocks are "safe" in an individual retirement saver's account, and that you can plan on their yielding more than bonds.

The unforgivable thing the financial industry did is to convince millions of retirement savers to count their chickens before they hatched.

In my opinion there are three risk factors in using a high stock allocation in retirement savings.

a) You believe they will earn their "historical" rate of return and use this as justification for saving too little.

b) You forget that stocks are volatile and that you're not psychic enough to sell at the peak. So at a time like the year 2000, you are fooled into thinking that you are in better shape than you are.

c) You misjudge your risk tolerance and sell a lot of your stocks just after a crash.

Here's my justification for including some stocks in a retirement-savings portfolio. I think of them as virtuous gambling, because unlike casino gambling your expectation is strongly positive. The "house" puts in a percentage rather than taking one out. I also think of them as free lottery tickets, because in the context of two, three, or four decades, stocks may not do much better than bonds--that's a real possibility, as shown by the fact that is just happened--but the chances of their doing worse than bonds is really pretty small.

So... as usual, based on history, and the future will surprise us as it always does...

a) Worst case is you lose everything, 100%, of what you put into stocks. Well, unpleasant as that would be, you can control it by not putting too much into stocks. Remembering that it's possible but really unlikely,
could you survive the loss of half your savings? A third? A fifth? A tenth? Then, even if you are an Eeyore like me and always think about the worst case, you should consider having 50%, 33%, 20%, or 10% in stocks.

b) A very possible case is that stocks don't do much better than bonds. But, if you "planned as if you were going to invest 100% in bonds", so what?

c) And, of course, while it's not certain, it really is darned likely is that stocks do better than bonds, maybe a lot better. Not always, not for everyone, but a lot higher than your chances of winning the lottery.

So, plan as if you were 100% bonds, but include stocks up to a point dictated by your risk tolerance. If stocks should happen to come through, by all means take that as your just reward for the risk you took, but don't count your chickens before they hatch.
Last edited by nisiprius on Sun May 31, 2009 12:45 pm, edited 3 times in total.
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preserve
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Post by preserve »

At least the Atkins diet lowered the overall caloric intake.
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Post by chicagobear »

I don't think anyone living in Argentina or Brazil would put all their wealth in bonds...

I think we will have high inflation in the US in the future. Stocks, representing ownership of real assets, at least have a chance of keeping up. Bonds simply get crushed.
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Post by nisiprius »

chicagobear wrote:I don't think anyone living in Argentina or Brazil would put all their wealth in bonds...

I think we will have high inflation in the US in the future. Stocks, representing ownership of real assets, at least have a chance of keeping up. Bonds simply get crushed.
As I said, in an earlier post--probably not up when you wrote this--"I'm convinced there's a coterie of stock boosters who "spin" things by comparing stocks with nominal bonds and never even acknowledging the existence of TIPS."

This is a real question, not a rhetorical question. Were inflation-indexed bonds available to people in Argentina or Brazil? If so, what actually happened to holders of these bonds?
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Post by bigH »

I'm a big fan of having alot of bonds say 50% for people of ALL ages, but 100% is not right. A balance of stocks, bonds, TIPS, cash, real estate (rental property), and some gold is my plan! Key part of the plan is defining the word BALANCE. Equal or heavy one side or the other.
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Post by Index Fan »

Agreed. 100% in any one asset class is a foolish decision.

Diversify.
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Post by Maverick »

I love this stuff...after a period where bonds do really well, the "gurus" come out and say you should be 100% in bonds. Likewise, after a period where stocks do really well, the "gurus" on the other side say you should be 100% stocks. If you were going to be 100% in anything (which I would not advocate), I would guess you would want to do exactly the opposite of what is being touted (i.e., go 100% the asset class being shunned). A better strategy, of course, is to ignore all of these pundits and establish an asset allocation that is appropriate for your goals, your time horizon and your assets. In all likelihood, this would include bonds, stocks and perhaps another asset class or two.
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Post by SP-diceman »

After bonds collapse he will be recommending 100% equities.


Thanks
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Post by chaz »

Index Fan wrote:Agreed. 100% in any one asset class is a foolish decision.

Diversify.
I second this. Diversification is important - equities and bonds.
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Post by Adrian Nenu »

Easy to write this stuff in the middle of a bear market but where was he during the bull market?! 100% bonds sounds like recency to me. Closing the barn door after all the horses are out. It can work for those who need modest returns because they have a ton of money in their portfolios (wealthy retirees) but might not work for those who need higher returns. It will not work for those in the accumulation stage. It can work if they have a nice pension and do not need to take more risk to try for higher returns. Zivi Bodie recommends bonds, TIPS specifically, but most investors will not have nice pensions and huge portfolios.

Investors typically overweigh stocks during bull and underweigh them during bear markets. It's no different this time. Bonds beat stocks 43% of the time in the long run and stock returns are very erratic. Knowing that, I propose an equity cap of 50% so that investors don't get too badly hurt by the periodic bear markets which they must ride out.

The inverted yield curve reliably tells when the risk is going up so most of the damage caused by bear markets is avoidable. The resultant cash can be put to work during the bear market via DCA giving a good entry point into stocks and improving the odds of higher future returns. Or the buy & hold investor can achieve similar results by overbalancing during the bear market.

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Post by Juan »

nisiprius wrote: This is a real question, not a rhetorical question. Were inflation-indexed bonds available to people in Argentina or Brazil? If so, what actually happened to holders of these bonds?
No. I've spoken to quite a few Argentines about it. Investing in anything is extremely expensive. There are lots of obstacles, taxes, and fees just to be able to invest outside of the country.

For inflation protection, individual investors either (a) bought physical goods, like cars, or (b) "bought" and held physical US Dollars. I say bought because they were selling for a lot more on the black market than their actual exchange rate.

Most Argentines still hold a sizable portion of their liquid net worth in cash, in physical US dollars.
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Post by mark500 »

You misjudge your risk tolerance and sell a lot of your stocks just after a crash.

I think a large percentage of people were doing this before 2008, myself included. Intellectually, I knew the market could go down 50%, and that fact had me in a conservative asset allocation before 2008. But even at 50% equities, I still took a painful loss that I do not think I could have emotionally endured without panic selling if I would have been older than I am.
The danger now may be that investors allocate too conservatively for their age/spending plans/inflation. I suspect many people will allocate too conservatively now...then the bull market will return...they will get back in stocks...and then.. :shock: wham :shock: ..another bear.
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Post by Spirit Rider »

nisiprius wrote:This is a real question, not a rhetorical question. Were inflation-indexed bonds available to people in Argentina or Brazil? If so, what actually happened to holders of these bonds?
I do not know this for sure. However, I have quite a bit of experience with Argentina. I have lived there for significant periods of time over the last decade. I doubt that there were ever any inflation-indexed bonds in Argentina.

This is because I can not think of any Argentinian who would trust their government's inflation rate calculations. This is a government that fired the minister responsible for the inflation calculations because they wouldn't cook the books any more than they were already doing. It is widely estimated by private economists that the Argentine inflation rate is 2-3 "times" the governments official rate.

People may dispute the CPI here. However, that is probably disputes over the basket of goods. There is no real chance of manipulating the actual calculations.

As much as I dearly love the country and the people. Think of a country run more like the Sicilian Mafia than the rule of law. It routinely is considered one of the least transparent and corrupt countries. Argentine's will not dispute this. In fact they will tell many worse things than this.

After all, this is a country that siezed every bank account in the coutry and forced every depositor to essentially give the government a 12 month loan in the earlier crisis. This is a government that defaulted on its national debt and blamed the creditors for its own irresponsibility. This is a government that just recently nationalized all the "private" pension plans. Need I say more?
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Post by Spirit Rider »

P.S.

Also, as some earlier said most Argentine's with any significant assets, hold them in the EU or the US. Most all transactions in country are done in U$ and I mean "dollars", actual currency.

You want to buy a car bring a bag of dollars. You want to buy a house bring a BIG bag of dollars.

You want to rent an apartment. You bring dollars for the deposit and dollars for the rent. Just make sure you photocopy the bills or at least write down the serial numbers of the bills, and demand the "exact" same bills back. Otherwise they are likely to subsitute counterfit bills.

I realize I am getting off topic here. Just an absolute reason I doubt there every were inflation-index bonds in Argentina.
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Post by chicagobear »

I doubt that there were inflation indexed bonds in Argentina, but I do know that in the mid to late 1980s there were US dollar denominated bonds issued by the Argentine government which were available to locals, because a man in my company's office in Buenos Aires that I was visiting put much of his money in them (in addition to a secret bank account in the US). These bonds were called "bonos" and I don't know if the government eventually defaulted them or not but I would guess that they did.

With regards to TIPS, I have two problems. The first is the calculation of the CPI, as was mentioned regarding Argentina, and the other is the tax treatment. If inflation in the US went up to 20%, since the inflation adjustment is taxed as ordinary income, the government is effectively confiscating a portion of your principal (as is also the case with all fixed income instruments). Holding TIPS in an IRA just defers the problem, although maybe this is one time where a Roth IRA would be useful since the tax adjustment would be tax free no matter how high it got.
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Post by Beagler »

chicagobear wrote: I think we will have high inflation in the US in the future. Stocks, representing ownership of real assets, at least have a chance of keeping up. Bonds simply get crushed.
Even TIPS?
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Post by Beagler »

Maverick wrote:A better strategy, of course, is to ignore all of these pundits and establish an asset allocation that is appropriate for your goals, your time horizon and your assets. In all likelihood, this would include bonds, stocks and perhaps another asset class or two.
Which % of bonds? Which % of stocks? (etc.) Are your recommendations based upon past performance?
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Post by Adrian Nenu »

Which % of bonds? Which % of stocks? (etc.) Are your recommendations based upon past performance?
Recommendation based on personal risk tolerance:

Tolerable Loss x 2 = Equity Allocation < 50%

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Post by jh »

...
Last edited by jh on Mon Jun 08, 2009 1:06 pm, edited 1 time in total.
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Post by Beagler »

Adrian Nenu wrote:
Which % of bonds? Which % of stocks? (etc.) Are your recommendations based upon past performance?
Recommendation based on personal risk tolerance:

Tolerable Loss x 2 = Equity Allocation < 50%

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I see the "equation" is changing. (now with the "<50%").
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Post by Adrian Nenu »

I see the "equation" is changing. (now with the "<50%").
The rule of thumb is changing because too many investors are not honest with themselves about their true risk tolerance (psychological and catastrophic loss). Per Peter Bernstein, bonds beat stocks 43% of the time in the long run. Equity outperformance is very erratic so there may be lengthy periods of underperformance. Very bad if that happens during one's lifetime. So I came up with a built in safety - a 50% cap on equity exposure. Of course they can go around it by using high yield bond or emerging markets bond funds. Not perfect but the simplest rule of thumb I came up with at this time to try and prevent the investing public from committing financial suicide.

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Post by czeckers »

I think that a 50% equity cap can be too conservative for many investors though, particularly those in the early years of accumulation. I think that the rule of thumb at least 20-25% bonds and no more than 75-80% holds true in most situations.

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People may dispute the CPI here.

Post by Analystic »

Spirit Rider wrote:
nisiprius wrote:People may dispute the CPI here. However, that is probably disputes over the basket of goods. There is no real chance of manipulating the actual calculations.
Looks like 7 percentage point spread by one estimate.

<a href="http://www.shadowstats.com" title="Visit ShadowStats.com"><img src="http://shadowstats.com/imgs/sgs-cpi.gif?hl=1" border="0" alt="Chart of U.S. Consumer Inflation (CPI)"></a>

Is that a lot?

(Thanks to these guys:)

http://www.shadowstats.com/alternate_data
Disclaimer: I am making all of this up.
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Post by Triple digit golfer »

Other than the dip in 82-83, the lines are pretty similar.
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Post by Adrian Nenu »

I think that a 50% equity cap can be too conservative for many investors though, particularly those in the early years of accumulation.
It is quite possible. But have to look at the psychological impact of a large loss on the individual, especially younger investors who probably have not experienced a severe bear market. They might panic and cash out at the wrong time. High equity allocations are easy during bull markets but very difficult during bear markets.

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Post by preserve »

mark500 wrote: The danger now may be that investors allocate too conservatively for their age/spending plans/inflation. I suspect many people will allocate too conservatively now...then the bull market will return...they will get back in stocks...and then.. :shock: wham :shock: ..another bear.
This comment is perfect for "modern portfolio theory." Its nearly impossible to achieve lowest risk owning one asset class.

Conservative investing and rapidly changing portfolio allocations are oxymoron's. I guess people think of investing as P91x.
Last edited by preserve on Sun May 31, 2009 8:58 pm, edited 1 time in total.
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Re: People may dispute the CPI here.

Post by nisiprius »

Analystic wrote:
Spirit Rider wrote:
nisiprius wrote:People may dispute the CPI here. However, that is probably disputes over the basket of goods. There is no real chance of manipulating the actual calculations.
Looks like 7 percentage point spread by one estimate. http://www.shadowstats.com/alternate_data
Shadowstats doesn't give its sources or explain its methods of calculation. It's just pure assertion. At least, they don't disclose it to nonsubscribers. I keep asking whether they disclose their sources and methodology to those who pay $175 for a subscription, but nobody seems to know.

The Bureau of Labor Statistics is more transparent about how they get their numbers than ShadowStats is.

Nobody has explained why, if the CPI is so far off, the unions that represent workers with COLA contracts, or the AARP which represents people on Social Security indexed to CPI-W are not complaining about it.

Finally, the "CPI-is-cooked" critics always used to cite the use of "owner equivalent rent" instead of actual housing prices as one of the chief methods of cookery. Thus, Mark Thornton of the Von Mises Institute wrote in 2004: "Housing prices are calculated with 'Owner's equivalent rent' which is an estimate of the rent that people would have to pay for their houses. With home prices rising and rental rates stagnant, CPI underestimates the real rate of price inflation over the last year by about 50%." It follows that in recent years the housing crash has resulted in the official CPI overestimating inflation.
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Post by Juan »

Saying shadowstats' methodology is flimsy is being too kind. As Nisiprius said, they don't even disclose their methodology, but it's certainly not going to be more rigorous than the BLS composite.

If there really was a significantly higher inflation risk, Eurodollar contracts tied to LIBOR would show it.

The government's current methodology may even under-estimate inflation because of changes in quality. A 'cell phone' today vs. a 'cell phone' 10 years ago may cost the same, but the one today is of much higher quality. Although government-tampered inflation numbers happens with some regularity outside of the US, we have a very rigorous, detailed process to come up with our numbers and they are fairly accurate. It's one of the reasons we have a competitive advantage in the financial industry.
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Post by mbrasher1 »

Spirit Rider wrote:However, I have quite a bit of experience with Argentina. I have lived there for significant periods of time over the last decade. I doubt that there were ever any inflation-indexed bonds in Argentina.

This is because I can not think of any Argentinian who would trust their government's inflation rate calculations.
Argentina apparently does have inflation indexed bonds, but, as you point out, investors question the calculation of CPI.

See http://www.bloomberg.com/apps/news?pid= ... yIOKun14bI and also http://www.hinduonnet.com/businessline/ ... 0120ju.htm

I remember in Britain, the inflation-index bonds were referred to by PM Thatcher as "sleeping policemen" in the flight against inflation, as it took away a strong incentive for the government to inflate away its debt.
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Post by Latestarter »

Maverick wrote:I love this stuff...after a period where bonds do really well, the "gurus" come out and say you should be 100% in bonds.
Let's give this guy the benefit of the doubt. First of all, I haven't heard many other people recommending 100% bonds, so he can't be dismissed for jumping on a bandwagon. His position is a dissident one. Second, let's assume -- if only because we have no evidence to the contrary -- that he's held it for some time and will continue to hold it even during a period when stocks outperform bonds.

I think we need to come to grips with the substance of his argument rather than just repeating slogans about the benefits of diversification.
Spirit Rider
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Post by Spirit Rider »

I stand corrected. However, I can't imagine who would have bought them.
grayfox
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Re: People may dispute the CPI here.

Post by grayfox »

nisiprius wrote:Shadowstats doesn't give its sources or explain its methods of calculation. It's just pure assertion. At least, they don't disclose it to nonsubscribers. I keep asking whether they disclose their sources and methodology to those who pay $175 for a subscription, but nobody seems to know.
John Williams of Shadowstats doesn't explain the method of calculation because there is none. He doesn't do anything quantitative. He is just making a guestimate. Here is a blog post from Econoblog by James D. Hamilton who is Professor of Economics at the University of California, San Diego

ShadowStats Debunked
http://www.econbrowser.com/archives/200 ... s_deb.html

After Williams was dubunked, here is how he responded:

"I'm not going back and recalculating the CPI. All I'm doing is going back to the government's estimates of what the effect would be and using that as an ad factor to the reported statistics."

Shadowstats is purely for the tin foil hats
:lol: <--I'm not laughing with ya, I'm laughing at ya

Caveat: Sometimes the tin foil hats are right!
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Karl
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Post by Karl »

I can't help but notice how times change. Back in 1999 -- a great time to buy some bonds -- holding bonds was almost deemed a symptom of insanity since everybody wanted to put all their money into anything ending in .com. I remember being told how I simply didn't understand the new economy and how the Internet would change the world. The folks who told me that disappeard as quickly in 2000 as did the money in their accounts. There were posts all over this forum from folks demanding that Vanguard start a tech fund, since apparently the 25% tech weighting of TSM just wasn't enough.

Now after a decade where stocks go nowhere and bonds turn out the be the place you would have been vastly better off now we have posts that go on & on & on about things as exceedingly boring as a GNMA fund, a fund that would have attracted almost no attention a decade earlier.
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spam
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Post by spam »

Latestarter wrote:
Maverick wrote:I love this stuff...after a period where bonds do really well, the "gurus" come out and say you should be 100% in bonds.
Let's give this guy the benefit of the doubt. First of all, I haven't heard many other people recommending 100% bonds, so he can't be dismissed for jumping on a bandwagon. His position is a dissident one. Second, let's assume -- if only because we have no evidence to the contrary -- that he's held it for some time and will continue to hold it even during a period when stocks outperform bonds.

I think we need to come to grips with the substance of his argument rather than just repeating slogans about the benefits of diversification.
I can't find a reference to who is quoted in the OP, but it might be one of the authors of the book "Bonds: The Unbeaten Path to Secure Investment Growth" by Hildy Richelson. They advocate for a 100% bond portfloio, and make a pretty good argument in different situations. I believe it was published by Bloomberg.

I do agree that buy-and-hold of equities is speculation even though I tend to buy-and-hold them.
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Triple digit golfer
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Post by Triple digit golfer »

spam wrote:
Latestarter wrote:
Maverick wrote:I love this stuff...after a period where bonds do really well, the "gurus" come out and say you should be 100% in bonds.
Let's give this guy the benefit of the doubt. First of all, I haven't heard many other people recommending 100% bonds, so he can't be dismissed for jumping on a bandwagon. His position is a dissident one. Second, let's assume -- if only because we have no evidence to the contrary -- that he's held it for some time and will continue to hold it even during a period when stocks outperform bonds.

I think we need to come to grips with the substance of his argument rather than just repeating slogans about the benefits of diversification.
I can't find a reference to who is quoted in the OP, but it might be one of the authors of the book "Bonds: The Unbeaten Path to Secure Investment Growth" by Hildy Richelson. They advocate for a 100% bond portfloio, and make a pretty good argument in different situations. I believe it was published by Bloomberg.

I do agree that buy-and-hold of equities is speculation even though I tend to buy-and-hold them.
It's just a friend. Nobody who wrote any books :)
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TrustNoOne
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Post by TrustNoOne »

Sorry to hear the guy doesn't have a blog, or web page. I pretty much agree with him.
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greg24
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Post by greg24 »

All the self-proclaimed gurus change their rules of thumb after the fact.
rmark1
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Post by rmark1 »

From the Retire early homepage describing "Your money or your life" author Joe Dominquez real life results with an all bond portfolio.


"Indeed, the $7,000/year that Joe Dominguez was drawing from his $100,000 US Treasury portfolio when he retired in 1969 would have needed to grow to $31,000/year by the time he died in 1997 to have the same spending power. "


Inflation can nibble you to death
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czeckers
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Post by czeckers »

It is quite possible. But have to look at the psychological impact of a large loss on the individual, especially younger investors who probably have not experienced a severe bear market. They might panic and cash out at the wrong time. High equity allocations are easy during bull markets but very difficult during bear markets.
I think there is an equivalent danger of people bailing on their AA after watching their portfolio underperform their friends' stock-heavy investments in times that stocks are outperforming bonds.

-K
The Espresso portfolio: | | 20% US TSM, 20% Small Value, 10% US REIT, 10% Dev Int'l, 10% EM, 10% Commodities, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."
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Karl
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Post by Karl »

Didn't Benjamin Graham over 30 years ago say to deal with the problem with having a stock allocation of at least 25%, but not more than 75%.

That way you have enough in stocks that you don't feel like a total idiot when stocks are flying high (1999). And that way you have enough in bonds that you're not totally crushed by a bear and feeling like a great big idiot (2008).

His very simple advice on asset allocation still seems prudent decades later.
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Facts are wrong

Post by Paul Puckett »

"I don't think there's a better method out there for retirement investing"

I gave you one. 100% bonds is proven to be the soundest investment and very little can destroy your golden years. You only get one shot at this. Don't be played by the gamers. "Buy and hold" is the worst thing you could possibly do with your money because the longer you hold the bigger chance you are going to lose. When done right you can get the same or better return from bonds at much lower risk. That is why the smart money is in bonds.

The anonymous friend is incorrect in his equity return assumptions and dramatically overstates bond and bond fund safety. 100% bonds in the current interest rate cycle is not rational, especially for retirees. If you take the income from a bond fund as its NAV falls, there is nothing that you can anticipate that would return the NAV to par. The only thing that Suze Orman says that I agree with is, you can't hold a bond fund until maturity. Reinvesting interest may offset a drop in NAV, depends on the drop, but if you are withdrawing any or all of the interest, ouch.

Question: What percentage of Vanguard Bond Funds have a negative return, including interest, YTD? And rates haven't really done much yet...
Money is not your life. It is simply the means to the life that you want.
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Triple digit golfer
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Post by Triple digit golfer »

czeckers wrote:
It is quite possible. But have to look at the psychological impact of a large loss on the individual, especially younger investors who probably have not experienced a severe bear market. They might panic and cash out at the wrong time. High equity allocations are easy during bull markets but very difficult during bear markets.
I think there is an equivalent danger of people bailing on their AA after watching their portfolio underperform their friends' stock-heavy investments in times that stocks are outperforming bonds.

-K
THANK YOU!
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