First up, the big picture.
1950-2007 (Per Capita, Inflation Adjusted)
Real estate asset growth: 2.61%
Replacement-cost value of structure growth: 2.33%
Disposable personal income growth: 1.85%
1950-1997 (Per Capita, Inflation Adjusted)
Real estate asset growth: 2.52%
Replacement-cost value of structure growth: 2.27%
Disposable personal income growth: 1.99%
1997-2007 (Per Capita, Inflation Adjusted)
Real estate asset growth: 5.81%
Replacement-cost value of structure growth: 4.41%
Disposable personal income growth: 1.56%
This shows the real (inflation adjusted) year over year annual growth in the value of residential real estate asset prices per capita. The shaded areas represent economic contractions. John M. Berry (see below), please note what tends to happen when the growth turns negative.
See Also:
Flow of Funds Fun!
Calculated Risk: Bloomberg's Berry: No Recession
Source Data:
FRB: Flow of Funds Accounts
U.S. Census Bureau: International Data Base
BLS: Consumer Price Index
National Bureau of Economic Research, Inc.
Now picture the person who is in their mid-50's and approaching retirement. At what point do they join us in their risk aversion? At what point do they determine they've made enough? October 9, 2007? Who knows?
ReplyDeleteAbove is from CR.
Mark, I made this decision at 58. OT....Have you heard of Fixed income index funds? IMO, They are similar to investing in ETF's but you cannot lose any of your principal. Of course, you only get 75% of the upside, which is the premium you pay for the no loss protection.
Would appreciate your insight.
Hi Tripleplay!
ReplyDeleteI haven't heard of a fixed income fund that protects the downside so I'd be curious to learn more about it.
I can say I get more skeptical as things get more complex and I am especially skeptical when I'm told I can't lose money.
Without knowing the details of the investment, my first concern would be inflation protection. How would it do if inflation and interest rates headed to 20% and stayed there? I suspect not all that well. I'm sensing a 20% rate reduced to 15% (75% upside) in a 20% inflationary world. Tack on taxes taking that 15% down to 10% and it won't take long to see that investment dry up.
I'm a big fan of I-Bonds and TIPS, not so much because I think I'll make more money than the next guy in an average case scenario (I won't), but because I think I'll sleep much better in a fairly worst case scenario.
I'll post another article about TIPS so it isn't just me talking. This isn't investment advice. I certainly don't know what's going to happen next.
These index funds invest in Dow, Nasdaq, Russell, Midcaps, etc. so inflation is hedged somewhat. You can also choose a fixed return. Changes to elections are annual.
ReplyDeleteRestrictions...must be tax deferred Ira's. After 1 year however, you can withdraw 10%.
If you want more info, E-mail me @ cpawayne2003@yahoo.com
ps......I am not a salesman for this product.
pps.... I wholeheartedly agree with sleeping soundly.
Tripleplay,
ReplyDeleteI wholeheartedly agree with sleeping soundly.
I played around with the numbers a bit assuming that you have 100% protection from taking a loss in any given year.
It seems like a really good deal. I'd pick the most risky/volatile investment and put it all in that. I wouldn't diversify. Wild swings are my friend. If I lose, I might just as well lose big (it isn't my loss, it is theirs). If I win, I really want to win big though. The goal seems to be to take on as much risk as I possibly could (since I'm offloading all of it) in hopes of maximizing my reward.
Unfortuantely, I'm fairly sure I wouldn't be sleeping soundly using that strategy!
In fact, if I was successful at the maximizing risk for them while maximizing the reward for me game, I'd start to wonder if they could actually pay me at some point, lol.
I only somewhat laugh. I think we've already seen this play out in the credit markets and at some point we might even see it spread to what Warren Buffett calls the financial weapons of mass destruction (deriviatives). Who knows!
Your principal is safe. My contract says so. I have 50% of my retirement funds in this product.
ReplyDeleteIt's funny, 15 years ago, I was a perma bull, now I am a perma bear. I have minimal risk tolerance, yet I fully believe the market will be up 10 years from now. I just cannot trade individule stocks like I used to. I guess the fear of going back to work to make up a possible loss keeps my hands off the keyboard.
Unfortunately my hobby is the markets and macroeconomics, so I know a bear market will happen sometime before I go to the big baseball diamond in the sky and I simply could not stomach a loss of 30%, no matter how much I was ahead at the time.
All the best
Tripleplay,
ReplyDeleteI have minimal risk tolerance...
I guess the fear of going back to work to make up a possible loss...
Unfortunately my hobby is the markets and macroeconomics...
Sounds like someone I know. Me! ;)