This is my first post in this forum, although I have been perusing the bond forum for quite some time. Charlie, I learn a lot from reading your informative posts regarding bond investments. I understand your concern about receiving returns in excess of inflation and taxes; however, I disagree with you about the level of inflation some of us are experiencing. You seem to think there is a general inflation rate of around 6%, but I think that number is way too imprecise and needs to be individualized, since your experience with inflation may be quite different from mine. For example, if I own my home with a long-term fixed rate mortgage and all the kids are out of the house and on their own (no more college tuition), it is very likely I will experience inflation much less than 6% and probably much less than a renter with kids in college. Of course, health insurance is a wild card if your not 65 or older, but almost all my other expenses are increasing at a rate far less than 6% inflation. I should add if you live in Ca. your property tax can only go up 2% a year. If you shop carefully, the costs for food and clothing are also increasing at a rate less than 6%. I guess what I am saying is that if an investor receives a return less than 8% it doesn't necessarily mean he is losing purchasing power. It all depends on his circumstances. Having said this I would be not be comfortable buying bonds with a ytm of less than 5% and a maturity of more than 5 years. But this is not because I would be losing purchasing power but more because of the risk of rising interest rates and the corresponding erosion of bond principal value.
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