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I’m going to do this one quickly, because I’ve got other things that need doing.

If you build your own fly rods, you’ll know that matters like guide-placement can be done with a great deal of precision that really won’t make much difference in how the rod throws line. An eighth-inch one way or the other for each guide, or a half-inch one way or the other (or more, especially with the lower guides) really doesn’t matter. If you don’t believe me, then run the experiments by taping guides on a blank and throwing some line. What you’ll discover from experimenting is that guide-placement really is as much about intellectual aesthetics as it is about achieving a practical solution to line-flow over your expected range of casting distances. OTOH, you don’t want to ‘over-guide’ the rod, because of the problems that creates with tip wobble and just the extra expense and effort of wrapping those guides and the sheer unprofessionalism of building the rod heavier than it needs to be. OTO, you don’t want to ‘under guide’ it, either, or suffer ‘line slap’ and, worse, risk tip-failure. But of the two faults, under-guiding will cause greater grief in the field than merely less than optimally placed ones (which describes nearly any commercially-built rod).

If you try to measure something like ‘inflation’, you’ll quickly find that precision is impossible, but, also, that it’s hugely important to not get it wrong, especially when you’re trying to estimate your projected expenses over long the time-frames that are encountered in retirement-planning.

Sometime, when you’re truly bored, poke around on the web and try to discover just how many ways inflation is being measured and reported by various organizations. E.g., the BLS offers three methods that give widely different results. The pre-1982 method suggests that current inflation is about 10.45%. The 1990 revised method suggest something around 6%. The current method suggests something in the neighbor of 3%, and it does so with 3 decimal places of precision. E.g., the March 2012 CPI-W number was 224.317, which, on a YOY basis, suggests that current inflation is 3.118% when compared to March 2011’s 217.535 number.

But now ask yourself how that number (extended further out or rounded down as you choose) compares with the current yield on the 10-year Treasury note, or with CD rates available from places like PenFed. To buy any high-quality debt instrument in today’s market is to choose to lose money (aka, your purchasing-power). Discount the gains offered by those instruments by your tax rate (your marginal-rate or your effective-rate), and the losses only increase. So what’s an investor to do?

The answer is simple, and it’s one that I’ve been hammering on for ten year years in this forum. You gotta run your own numbers, for those being the only ones you can trust, and then you’ve gotta build in a healthy fudge factor, because inflation isn’t something that can be estimated with precision. E.g., my personally-experienced rate of inflation is running about 4.57%. But I round that up to 5% when I’m looking for bonds to buy, and I round it up 6% when I running stress tests on my retirement plan. No financial planner in current-day America works with a projected inflation number that high when they are creating plans for clients, because they know their clients can’t pull enough money out of markets to overcome that hurdle, not when Dalbar’s studies show that average investor gained a mere 3.8%/year over the past 20 years for their stock investments and a pathetic 1.1%/year on their bonds *before* taxes and inflation.

What’s the “real’ rate of inflation? Who knows? Nor should anyone care. All that matters is your own personally-experience rate of price-changes for the goods and services you buy and whether you can pull enough money out of markets (or other sources) to stay ahead of them. In another thread, Hockeypop suggested to me that I’d should be content with something in the neighborhood of 2%-3% over 10-year note for the next 5-7 years and then look to rebuild wealth thereafter. But I’d say there’s no reason to deliberately lose money now and then hope to make it back up latter, and that something in the neighborhood of 5% over the current 10-year rate, or 8% absolute, is a better benchmark both now and then, and that it not an unachievable benchmark even with just a conservative (but properly managed) all-bond portfolio. Add in some higher-risk assets, such as stocks, and returns that clearly stay ahead of taxes and an inflation can be achieved, so that one has the money to buy, not just life’s necessities (like food, shelter, and medical care), but also some of life’s pleasures, like fly rods (whether you build them from components for the fun of it, or ask someone else to do it for you).

Charlie
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