The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Re: Courting’ Kelly’s Waitress Date:  3/19/2011  1:18 PM
Author:  charliebonds Number:  32505 of 36864


If you trust your numbers, then act on them, and I wish you and your gal a long and prosperous life.

I'm more risk-adverse than you. So I discount the future more heavily than you (aka, over-weight the bad things and under-weight the good things). That's why I demand a higher present return from my investments, so that I can manage future estimation errors.

Also, I frame the retirement-funding problem differently than most people. I don't ask whether I will run out of money before I run out of life. I ask in what year will my net-worth begin to decrease. In other words, no matter how long I live, I demand that my cash-flow (after a draw for living-expenses) be positive. So I bypass the debate over Safe Withdrawal Rates and focus on Safe Investment Rates by asking, what is the lowest return I have to obtain in order to never go cash-flow negative?

Right now, I am projecting that with a 6% inflation-rate, my customary tax-rates, and a pre-tax gains-rate of 5%, I get to age 105 before my investment-net worth that year is less than the prior year. Thus, 5% becomes a benchmark. If, on average across my portfolio --which includes 10% cash-- I am obtaining that much, then I'm on target. If I can pick up investments that offer twice that, or three times, or six times that, I do so. With those higher returns comes higher loss-rates as well. But if, across a basket of risks, my average return runs around 8%, then two things have been accomplished. Future gains can be lower (and accepted risks can be lower). But more importantly, skills are acquired which lower the risks of pursuing those higher returns if higher returns ever become needed. So the pursuit of higher returns than I would seem to need is a double insurance policy. And given the craziness of the world we now live in, I don't think I'm being overly cautious.

If inflation heats up in this country, as everyone seems to expect it will given current Fed policy, then the buying time for Treasuries will come again. At the top of the interest-rate hikes, I'll go massively long and get out of the multi-sector game. Until then, I intend to obtain from the bond market very dollar I can on the theory that risks taken now are risks I don't have to accept later.

Sometime, when you get a chance, go to Vanguard's website and look at the performance returns on their index funds. The past ten years haven't been kind to investors in any asset-class. Why should the next ten be even as good, given this country's unwillingness to fix its structural problems, like, not understanding that $2.2 trillion in government revenues doesn't enable $3.8 trillion in government spending? (That's the CBO numbers for 2011). The redistributionist rabble want to tax the "rich" to make up the shortfall. But the burden of tax-increases will fall on them, as will the necessary increases in interest-rates. And now that Japan, a formerly huge Treasury buyer, is repatriating yen, problems will only increase for US investors. The safest bet is that the 'teens will be another "lost decade" in which returns (nearly any asset-class except commodities) will be negative after taxes and inflation. How many presently formulated investment plans can tolerate that kind of distress? What are the current, food stamp figures? One in seven households? If I'm remembering right, one in three seniors is now below the poverty line. It's numbers like that make me want to keep "the pedal to the metal" in terms of pursuing returns.

But to each, his own.

Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us