Posts
August 26, 2011
Is the stock market ripping you off?
Are you thinking that maybe the stock market is a rip-off?
Yes.
A scam?
Yes.
How did they drag me into this?
You didn't resist.
Since when am I supposed to be a stock market investor?
Since April 17, 2000.
Can't we go back to the "old days" when I could count on a pension and Social Security for my retirement?
No.
Who came up with the idea of a 401k plan, which requires me to make investment choices?
Someone who likes to earn a percentage of your nest egg each year.
Is there any rational way to make investment decisions in a market like this?
Yes.
Is this the end of America as we know it?
Yes.
Why do I have to invest in the stock market?
You don't.
Why is this my responsibility?
It's your nest egg.
Why don't we have pensions anymore?
They're expensive.
Aren't professional managers, by definition, better at this?
No.
Why invest for the long run?
You intend to live long.
Wouldn't it be better to start investing during the good times?
Trick question. Good times aren't coming.
That quiz wasn't nearly as difficult as I thought it would be!
Sunday Night Futures
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Weekend:
• Schedule for Week of November 24, 2024
Monday:
• At 8:30 AM ET, *Chicago Fed National Activity Index* for October. This is
a composite index of ...
5 hours ago
9 comments:
Casino rules...the house always wins.
On another note, have you done posts on buying tips in the secondary market?
Is this a really bad idea...or should I wait for January. I assume that TIPS funds have the same downside as most bond funds, but I am willing to be wrong. Any suggestions or pointers to info would be most appreciated.
fried,
On another note, have you done posts on buying tips in the secondary market?
I have only bought through the secondary markets once. It was to fill my IRA with that one 29-year TIPS earlier this year.
I didn't really enjoy the process. It wasn't very transparent. To this day I still don't know how much I paid in fees. They were built into the bond price.
10-Year TIPS Auction
There is not much data here and it is noisy. However, it does back my belief that if you want the best yield and/or the fairest price then it is probably best to participate in the auction directly and avoid the middlemen.
Okay, next question.
Is this a really bad idea...or should I wait for January.
I know the feeling. I just wanted to lock in what I thought was a good rate. I was concerned rates would fall more. On the one hand, I would have done better in the auction (I participated in it too). On the other hand, I do not regret the decision. Interest rates are far lower now. It was a very good trade so far.
I assume that TIPS funds have the same downside as most bond funds, but I am willing to be wrong.
Yes. I consider the risk to be high right now. TIPS can fall in good times as investors embrace stocks. TIPS can also fall in bad times if deflation strikes again. TIPS were not a great place to be when deflation struck in late 2008. See here.
If you think we'll have another deflationary event like we did in 2008 then you'd be better off in cash more than likely.
If you think we'll go directly to stagflation and stay there then you could probably do worse than buying TIPS right now.
I could go either way. I'm sitting on a bit more cash than usual right now. The crystal ball is foggy.
For what it is worth, I am participating directly in the 10 year TIPS auction early next year (it is intended to cover some of my expenses 10 years from now).
On a risk/reward basis, I think I-Bonds are a much better deal than TIPS right now.
If deflation strikes, you can't lose so much as a penny.
If serious inflation strikes, I-Bonds are tax deferred.
Further, the 0.0% rate on I-Bonds is better than the -0.1% real yield to maturity of TIP AND you don't have to pay 0.2% per year in fees.
In theory, you never need to find a greater fool with I-Bonds. Simply cash them out (after one year with a 3 month interest penalty or after 5 years with no penalty).
From the RIPPING YOU OFF link:
This is complete and utter bullshit. Nobody but warren Buffet or someone with infinitely deep pockets and an infinite time horizon buys stocks this way. What people do is speculate - which in nothing more than rent-seeking - that the price will go up and they can sell for a profit.
I think the secondary market has a legitimate purpose, but the idea they using it is investment is really a huge lie, and just part of the scam.
WASF,
JzB
WTF?!?
This is the quote that disappeared:
When you buy stock in a company, you are investing alongside its other owners, hoping to share in profit growth. Those increased profits make the stock more attractive to other investors who, presumably, will buy stock at higher prices.
Jazzbumpa,
Nobody but warren Buffet or someone with infinitely deep pockets and an infinite time horizon buys stocks this way.
This is a great point and one that is important when trying to control risk.
As much as I prefer TIPS in this environment, I am not interested in buying infinite duration treasury inflation protected securities (if they existed). The risk would be too high.
Over time, the risk falls as I get closer and closer to maturity. What was once a long-term risky investment becomes a safer short-term investment.
Stocks never get closer to maturity though. They never mature, nor does gold or real estate.
It is a gamble to speculate on infinite duration things when you absolutely need the money much sooner than that. Sometimes that gamble really pays off and sometimes it doesn't.
Mark,
thanks for your reply. I agree that things are foggy now...nothing seems clear or safe...as for ibonds--I already have my year's allocation, so no help there. Soemtimes, I suppose, patience is what is needed.
Many thanks.
fried,
Patience can stop one from making big gains, but it can also help protect against big losses.
Here's one thing we probably both know. If TIPS were a screaming bargain right now then neither of us would probably be having this conversation. In other words, there are probably worse times to be patient.
If you do opt for patience, then you can always join me in rooting for Jeremy Siegel to pump the stock market and bash TIPS (preferably right around auction time again). Perhaps he can post a chart of ancient stock market returns and include a few photos of ancient Stonehenge to seal the deal, lol. ;)
Keep in mind that if/when we enter another recession and the stock market and commodities fall, then TIPS should fall in sympathy (just not as much).
TIPS did not fall in the early 2000s recession, but that was a dotcom exception. Dotcom stocks are/were not part of the consumer price index.
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