Tuesday, April 26, 2016

Quote of the Month

April 26, 2016
Jack Bogle: There's no stock picker's market

"We investors are funny people," he said. "We'd rather have a five percent return at eight percent inflation, than a two percent return with no inflation, although obviously the latter is the better investment."

I've seen it first hand, many years ago, on Yahoo's message board for TIP (an inflation protected bond fund holding TIPS).

I argued that TIP investors should not be rooting for more inflation even though they own inflation adjusted bonds.

It would be far better to earn 1% with 0% inflation than 11% with 10% inflation, due to the taxation of the inflationary gains. And unless you like the thought of being taxed to death, you really don't want to see hyperinflation while sitting in inflation protected treasuries.

My argument fell mostly on deaf ears. One person was especially giddy over the thought of hypothetical 11% pretax returns and nothing I said could convince him otherwise. In the end we managed to agree on something. Each of us thought the other was nuts, lol. Sigh.

As I've said before, I own treasuries with inflation protection for the same reason I have fire insurance for my home. I sleep better. It does not mean that I am rooting for inflation. It does not mean that I'm rooting for my house to burn. Go figure.

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