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Message
For those seeking reduction in LT portfolio volatility
Posted on 4/18/09 at 12:09 pm
Posted on 4/18/09 at 12:09 pm
Understanding Inflation-Indexed Bond Markets
As usual, YMMV.
quote:
The standard deviation of the 10-year GMV portfolio is fairly low in the 1960’s at around 1% per year. This is the period that led Fama (1975) to assert that the ex ante real interest rate is constant over time. Starting in the 1970’s, however, persistent movements in the real interest rate cause the standard deviation to rise rapidly to about 4% per year. The standard deviation drops back to about 2% in the mid-1990’s, but by 2008 is once again at a historical high of 4%. These numbers imply that in‡ation-indexed bonds substantially reduce risk for long-term investors.
As usual, YMMV.
1
Posted on 4/18/09 at 1:01 pm to tirebiter
Gonna add this to the never-ending list of papers I need to read. Thanks.
Posted on 4/18/09 at 2:47 pm to kfizzle85
Interesting securities to follow, the off the run real yield of some individual TIPS was 3.5% - 3.9% in November and picked up a good chunk and bought additional VIPSX, Vanguard TIPS fund now has a real yield of 1.65%, still good compared to comparable duration nominal Treasuries. They are a good equity diversifier. Don't tell the brokers on the board, they don't make money off of them. 
This post was edited on 4/18/09 at 2:50 pm
Posted on 4/18/09 at 3:14 pm to tirebiter
Man, I think I might have gotten IRL'd by an amsterdam clone last night. Friend of a friend, whom I had just met for the first time, essentially trying to sell me on various insurance products. Keep in mind, I am 23 and about to start grad school. The only assets I have are a laptop, monitor, and a mountain bike [which he knows, because I had just told him]. It was mind blowing.
He had some vendetta against all CPAs because they apparently [1] don't understand anything and [2] always bash the products he is trying to sell [even though I told him I wasn't doing that type of accounting about 5 different times]. I thought about making a post and outlining the whole conversation, and then the conversation I had with my dad about it [because he sells insurance, and he told me this guy "didn't know what he doesn't know"] because it was so ridiculous.
He had some vendetta against all CPAs because they apparently [1] don't understand anything and [2] always bash the products he is trying to sell [even though I told him I wasn't doing that type of accounting about 5 different times]. I thought about making a post and outlining the whole conversation, and then the conversation I had with my dad about it [because he sells insurance, and he told me this guy "didn't know what he doesn't know"] because it was so ridiculous.
Posted on 4/18/09 at 3:35 pm to kfizzle85
Wow, sounds like a less than stellar experience. Did the clone work for Stanford prior to his existing work? 
That is one challenge for some with no tax advantaged assets, individual TIPS would be an accretive tax headache in a taxable account.
That is one challenge for some with no tax advantaged assets, individual TIPS would be an accretive tax headache in a taxable account.
Posted on 4/18/09 at 4:05 pm to tirebiter
The funniest part is that I'm sitting there thinking, this guy is 28ish, but he sounds like he just walked out of the "this how you sell someone x" seminar. Turns out he's only been working at said company [some local insurance place that my pops said has a less than stellar rep, but I digress] since August. If I can tell you don't really know what you're talking about [ETA: AND I can identify your blatant attempt to try and sell me something on said subject], and I haven't had anything close to any experience in that type of situation, you know you are pretty bad at what you do. He was fixated on "14% IRR" on some death benefit, "FIFO Investments" vs "LIFO Investments" [which reeked of "look I know an accounting term," since its pretty irrelevant], and "guaranteeing me a 7% return." Luckily my beer was empty, so I had an out and ran for the bar.
This post was edited on 4/18/09 at 4:08 pm
Posted on 4/18/09 at 4:56 pm to kfizzle85
quote:I like him already....
He had some vendetta against all CPAs
j/k
(a little)
Posted on 4/18/09 at 5:02 pm to kfizzle85
quote:
amsterdam clone
The rumor is true. We are multiplying
Posted on 4/18/09 at 5:06 pm to tirebiter
quote:
They are a good equity diversifier. Don't tell the brokers on the board, they don't make money off of them.
Especially good when you expect to see high inflation. Comment today from a high ranking Fed has me wondering just how effective they will be in the near term. Said the FED will fight inflation and its target is 2% which would undermine a TIPS fund.
Posted on 4/18/09 at 5:23 pm to LSURussian
Well I can at least understand where he is coming from, even if it is completely self-serving and biased. I never really have any idea about you.
Posted on 4/18/09 at 5:43 pm to kfizzle85
quote:So, you're saying my strategy is working???
I never really have any idea about you.
Posted on 4/18/09 at 6:29 pm to LSURussian
Fantastically.
Posted on 4/18/09 at 7:02 pm to kfizzle85
quote:
Fantastically.
Please define "fantastically" if you can.
ETA:
This post was edited on 4/18/09 at 7:03 pm
Posted on 4/18/09 at 8:42 pm to LSURussian
Do you stalk posters to ask really dumb questions?...Or, perhaps you are really as dumb as your questions imply? You know, really big appendages and exceptional intelligence rarely are found in the same individual. Of course, we already know that you are the exception...you assured us of that.
quote:
Main Entry: 1fan·tas·tic
Pronunciation: \fan-ˈtas-tik, fən-\
Variant(s): also fan·tas·ti·cal \-ti-kəl\
Function: adjective
Etymology: Middle English fantastic, fantastical, from Middle French & Late Latin; Middle French fantastique, from Late Latin phantasticus, from Greek phantastikos producing mental images, from phantazein to present to the mind — more at fancy
Date: 14th century
1 a: based on fantasy : not real b: conceived or seemingly conceived by unrestrained fancy c: so extreme as to challenge belief : unbelievable ; broadly : exceedingly large or great
2: marked by extravagant fantasy or extreme individuality : eccentric
3fantastic : excellent, superlative <a fantastic meal>
— fan·tas·ti·cal·i·ty \(ˌ)fan-ˌtas-tə-ˈka-lə-tç, fən-\ noun
— fan·tas·ti·cal·ness \-ˈtas-tə-kəl-nəs\ noun
LINK
Posted on 4/19/09 at 12:33 pm to amsterdam
quote:
Especially good when you expect to see high inflation. Comment today from a high ranking Fed has me wondering just how effective they will be in the near term. Said the FED will fight inflation and its target is 2% which would undermine a TIPS fund.
When does one need insurance, prior or post event? Real return on public equity historically is ~ 4%, one could have loaded up on guaranteed bonds at 3.5% real rate, why take the risk? Even at 1.65% real rate for those seeking effective diversification for equity holdings it makes sense. Many investors that take equity risk do not want to accept credit risk on fixed income holdings. Maybe the US stays in a deflationary mode for a few years, it won't last forever. "Subprime is contained."
When should one invest in commodities/futures, when they are at peak cost or when they have declined precipitously?
Posted on 4/19/09 at 1:01 pm to tirebiter
I am skeptical of the hyperinflation crowd, but I'm not going to try and predict inflation expectations. Suffice it to say that right now even the most pessimistic inflation predictions are about 4% towards the end of 2010 (and holding at 4% through 2011).
Posted on 4/19/09 at 1:33 pm to kfizzle85
Which would lead to a total return of 7.55% annually on the long dated TIPS I hold in Roth and rollover 401k accounts, I am fine with that compared to taking risks on other forms of fixed income. I do hold muni's, some govt agencies FI, cash, and equities.
Posted on 4/19/09 at 1:40 pm to tirebiter
Oh definitely. I can't see a reason why everyone doesn't have some portion of their portfolio in TIPS.
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