How do you invest your money?

I'm investing everything in a bloke named Tim, he looks after me, keeps me supplied with all manner of stuff, toffees, single malts etc, and, I've told Tim, I want it all now. 😊
 

The first investment advice I would give anyone is to get yourself debt free if you are not already. Debt is a form of slavery. When you are in debt someone else is making money off of you. Quit paying someone else to rent their money.
 

Trade said:
The first investment advice I would give anyone is to get yourself debt free if you are not already. Debt is a form of slavery. When you are in debt someone else is making money off of you. Quit paying someone else to rent their money.
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depends , the key to growing substantial wealth is using the money of others if you can get a better return.

it isn’t debt that’s bad ,it is debt that isn’t multiplying your assets

so there is good debt and there is bad debt .

a knife can be a tool to help people or to hurt people .

it’s how you use it
 
mathjak107 said:
depends , the key to growing substantial wealth is using the money of others if you can get a better return.

it isn’t debt that’s bad ,it is debt that isn’t multiplying your assets

so there is good debt and there is bad debt .

a knife can be a tool to help people or to hurt people .

it’s how you use it
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mathjak107 said:
well don’t publicly post if you aren’t expecting replies and comments, especially when it’s not a one size fits all answer you posted.

this is how we all learn on PUBLIC FORUMS
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And like a bad penny, he's back.

bad-penny.jpg
 
mathjak107 said:
but a far more knowledgeable penny then the posters i see posting myth and misinformation.

if you don’t want comments then don’t post publicly, simple answer
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You have a very high opinion of yourself which is not shared by me.
 
doesn’t matter what you think .

that does not change facts.

a lot of what is posted here is myth , wrong or misinformation

not all debt is bad or needs to be paid off . that is just ridiculous as a one size fits all statement
 
mathjak107 said:
doesn’t matter what you think .

that does not change facts.

a lot of what is posted here is myth , wrong or misinformation

not all debt is bad or needs to be paid off . that is just ridiculous as a one size fits all statement
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Whatever you say self appointed financial expert.
 
mathjak107 said:
right now is one of the most rarest moments in our financial history.

typically after inflation and taxes a one year cd rate will be negative . bonds typically will be at breakeven with inflation and taxes .

because of all the fear and uncertainty world wide cash instruments are actually having positive real returns .
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I actually purchased my first 10 year TIPS bond a while back that if held to maturity (which is a very important condition) will yield 2.1% over the inflation rate. Even after taxes that’s a net profit in real terms.
 
Brookswood said:
I actually purchased my first 10 year TIPS bond a while back that if held to maturity (which is a very important condition) will yield 2.1% over the inflation rate. Even after taxes that’s a net profit in real terms.
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yes and no .
when that bond matures in 10 years getting back your 1k and having it buy 500- 700 dollars in goods is still a loss.

they paid you for the use of your money over the ten years at 2% over the inflation rate but the principal took a huge hit in purchasing power when you get it back
 
mathjak107 said:
yes and no .
when that bond matures in 10 years getting back your 1k and having it buy 700 dollars in goods is still a loss
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Why would I only the $1000 I paid for the bond? If there was inflation I would get that adjustment added to the bond to account for inflation. Thats the inflation protected part of the bond.
 
Brookswood said:
Why would I only the $1000 I paid for the bond? If there was inflation I would get that adjustment added to the bond to account for inflation. Thats the inflation protected part of the bond.
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what you are getting at maturity is the interest each year on that 1k accumulating .

so that interest rate effectively is for the use of your money each year .

so for the use of the money you get 2% above the inflation rate per year

so let’s say you get 1500 at maturity .

500 is for the use of your money and the 1k is your principal you spent .

that 1500 effectively is losing about a third typically in purchasing power .

so while you got 1500 dollars you lost 300-400 in purchasing power in your original investment of 1k
 
Brookswood said:
I actually purchased my first 10 year TIPS bond a while back that if held to maturity (which is a very important condition) will yield 2.1% over the inflation rate. Even after taxes that’s a net profit in real terms.
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Most bank CD rates can easily beat your TIPS (inflation + 2.1%).
 
the problem with tips is the base rate is based on future guesses about inflation expectations not current inflation .

the interest is based on inflation over a 6 month period and not monthly but the base rate is based on guess of the future rate and that is where the problem is

as tyler the founder and creator of portfolio charts website and creator of the popular golden butterfly portfolio says about tips

because of how TIPS are priced based on market predictions of future inflation, one could argue that buying them is really just a speculative bet on inflation. If inflation turns out to be higher than expectations, inflation-protected bonds are the better deal. If it’s lower than expectations, nominal bonds are the better deal. And if the market lucks into a perfect prediction of inflation, then the two options are a wash.

And incidentally, the fact that the yields of inflation-protected bonds are dependent on market expectations of future inflation is also why they’re virtually impossible to academically model.

here is a pop question .

Since the advent of TIPS in the United States, what percentage of the time has the TIPS market generated a negative real return below inflation?

the answer is more than 1/3 of the time because of how the base rate is calculated and how the inflation adder is changed not monthly but every six months

here is another question ?

What is the longest compound drawdown that TIPS have experienced over the last 25 years?

the answer

The longest sustained drawdown to date was about 8 years, but the latest loss has erased previous recoveries and pushed it to 12 and counting. That’s a long time to wait for the promised positive real return to kick in, especially in a dataset of just 25 years.

But that’s ok, since surely TIPS have at least been safer than their nominal counterparts that are not adjusted for inflation at all.


okay one more question

Over the same timeframe since 1998, what percentage of the time has the total nominal treasury bond market generated a negative real return below inflation?

Since 1998, regular bonds have lost money to inflation less often than inflation-protected bonds. And what if I told you that if you compare them year by year, TIPS only bested nominal bonds in inflation-adjusted terms 64% of the time? Are you comfortable with it being closer to a coin flip than to a clear advantage?

so the way tips actually play out is very different than we think when our brains tell us we are always guaranteed to be 2% ahead of inflation .

that is not the case because the base rate is based only on the future expectations for inflation and rates are only adjusted on the inflation kicker twice a year
 
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so here’s the view of quite a few financial gurus when it comes to tips

they are not terrible but i would never count on them to keep up with my lifestyle costs .

they may not even keep up with actual inflation .



Numbers in a spreadsheet do not tell you about political risk that often comes with high inflation. You have to use some intuition and historical extrapolation to guess what results from high inflation and why you don't want to use TIPS.

1) High inflation is a political problem in almost every case. The people causing the inflation know they are doing it.
2) Because high inflation is unpopular with the masses, the people in charge are always going to lie about it as long as possible to deflect blame.
3) Then when lying doesn't work, they will implement policies like price controls to make it look like they are doing something. This always makes it worse.
4) Along the way, they will manipulate economic numbers to try to trick the markets. However the markets are much smarter than the typical politician, who is usually an idiot based on my experience.

But these things are not going to show up in Excel. There is no ("IDIOT POLITICIAN ) function you can call. There is no way for you to anticipate what actions they will take to lie about the situation. And, there is no way for you to know how the markets are going to react to the mess.

I will only suggest that the markets will figure out the right thing to do and that right thing usually is not relying on government numbers about inflation.

so tips are like buying fire insurance from an arsonist

Or you can simply go back and read Nixon's, Ford's and Carter's speeches about inflation in the 1970s. It was lie after lie after lie. A decade of lies.

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.


here is your data below

All About TIPS: Real Returns and Inflated Expectations – Portfolio Charts
 
Brookswood said:
I actually purchased my first 10 year TIPS bond a while back that if held to maturity (which is a very important condition) will yield 2.1% over the inflation rate. Even after taxes that’s a net profit in real terms.
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you would think that is how tips would work , but if you read what i posted you will see that unfortunately because of how the base rate is a guess about future inflation and the inflation kicker is based on 6 months of inflation figures , they actually have had negative real returns over 33% of the time and actually beat plain old treasury bonds only 64% of the time .


so a far cry from the beating inflation by 2%as you would think and it isn’t such a clear advantage despite the inflation kicker
 
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Trade said:
The first investment advice I would give anyone is to get yourself debt free if you are not already. Debt is a form of slavery. When you are in debt someone else is making money off of you. Quit paying someone else to rent their money.
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I agree with this, @Trade ... I've been there, am totally debt-free now and would never consider for a second getting back in. I was given this very advice by a totally astute financial advisor 25 years ago and it has worked wonderfully. Didn't need debt to become financially sound.
 
Aunt Bea said:
For me, financial security/independence is all about peace of mind.

Keep it simple and do what feels right for you and your situation even if that means leaving a few bucks on the table.
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it’s all about matching your draw to the allocation you need .

you can turn a retirement in to a very risky roll of the dice as an example by going to low in equity allocation and even trying to draw 4% inflation adjusted .

its to low of an equity level vs to high of a draw that is the real danger

so it isn’t a case of do what we are comfortable with ,it’s doing what is required to maintain a high success rate of not running out of money .

some may be lucky in that they only need 3% inflation adjusted and so nothing wrong with 100% fixed income .

but if you need more , like the proverbial 4% draw then you would have better odds at vegas than pulling 4% inflation adjusted over a 30 year retirement and not running out of money before you run out of time .

we already had 125 30 year rolling retirements and 65% of them failed using fixed income alone .

we are in the sweet spot ourselves since .

we can go very very low equity levels at this stage since not only do we draw 3.4% or so but the past decade of our retirement we were 40-50% equities and markets did great even with the few set backs .

so with ten years less of life to feed now we can go very low or very high in equities .

but not everyone is lucky and despite what is comfortable they need those 35-40% equity levels to not run out of money at their draw rate .

so i only wish we all had the flexibility of doing what we are comfortable with , but that isn’t how the math works when you need 4% or more inflation adjusted as a draw.

the whole idea of a safe withdrawal rate is pensionizing what you have so even in the worst of times your income needs no pay cut .

the idea is the income stream stays solid like a pension check but the balance left can vary .

but when not enough equities are used that money has a high rate of needing a pay cut and no one likes a pay cut .

going from a 4% draw to 3% is a whopping 25% cut in pay .

but with fixed income failing 65% of those 125 rolling periods , trying to draw 4% is riskier than being 100% equities is which only failed 6%
 

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