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Author: Off2Explore Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 744790  
Subject: Re: Interesting Article Date: 10/11/2000 1:09 PM
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"(1) Since fixed income investments historically lag the return on equities by 3% to 4% per annum, it will take a lot longer for CD investors to accumulate a nest egg of 'X' dollars."

This assumes that most of your nest egg comes from compounding rather than saving. The closer you are to retirement, the less true this is. Under the conservative projections I've made going forward, assuming that investment returns will quickly head south in a 'return to the mean' that brings the long-term average back to 10.5%, saving is more important than investing. The higher your discretionary income is, the more true this will be.

"Buying 30-Year TIPS is preferable to CDs for "all CD" investors. Currently an inflation-adjusted yield of almost 4% is available in 30-Year TIPS."

Is the gap great enough to make TIPS a better deal for taxable accounts, given that the TIPS interest will be taxable annually while the CD interest won't be taxable (as I understand it, which may be wrong) until the CD comes due or is otherwise withdrawn?

I agree that inflation-adjusted yields are stellar, which is why I've just started buying I-bonds. This gives me good after-inflation return safely and lets me defer the taxes until I actually use the money. I would never want to be completely out of the stock market, but I have sold most of my tech stocks and am very wary about what new stocks I purchase. (I am looking only for good value at this point, as I believe that the growth-stock mania is about to end badly.)


Off2Explore
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