Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
All bonds and cash carry inflation risk as well as interest rate risk if you need the money sooner on bonds . .
Long term , stocks carry less risk for that reason than bonds in retirement .
Trying to draw more than a 2% draw inflation adjusted from fixed income has failed to last to many times to be even considered a safe withdrawal rate.
what do you think a bond holder was able to buy if he bought a 10 year bond in 1965 when inflation was at .97 and when he got his 1k back inflation was almost 12% ?
getting your 1k back and having it buy 200 bucks worth of goods is losing money and taking on risk despite what you think .
I'm not sure why you think I don't understand the issue of inflation, but I assure you that I do.
The concept of "risk-free rate" is well understood in finance. If you want to modify that concept to suit your own purposes, fine. But that doesn't change the common understanding of the concept.
you may understand the concept of inflation but evidently calling a 10 year treasury risk free you don't understand the concept of risk . investing and real returns . just getting a constant guaranteed interest flow may have risk free interest and principal but not maintaining a positive real return is always a risk . real return is all that counts , not nominal .
Last edited by mathjak107; 04-03-2017 at 02:34 AM..
as michael kitces pointed out , bonds stopped being a risk free asset in the 1960's . real returns are what is at stake .
inflation averaged only 2% in the 1950's and 2.30% in the 1960's . in 1973 inflation roared to 6.20% and by 1974 saw 11% .
in fact from 1973 to 1982 inflation averaged a whopping 8.7% destroying any purchasing power bond interest had by 57% in a decade . that is a risk by any standard .
all that matters are real returns , not nominal returns .
Last edited by mathjak107; 04-03-2017 at 05:42 AM..
Risk free since they hold to maturity and replace with like securities. The 5-year Treasury note's yield ranged from 6 to 16 percent during the period. The portfolio's yield would rise over time. It would be far above the inflation rate by the early 80's.
it does not matter if the real returns are at a loss ...... if you lost your purchasing power you lost . there is risk-period . all bonds have real return risk . there is nothing to argue .
you may understand the concept of inflation but evidently calling a 10 year treasury risk free you don't understand the concept of risk . investing and real returns . just getting a constant guaranteed interest flow may have risk free interest and principal but not maintaining a positive real return is always a risk . real return is all that counts , not nominal .
Looks like you missed the important part of the post, so here it is again:
Quote:
The concept of "risk-free rate" is well understood in finance. If you want to modify that concept to suit your own purposes, fine. But that doesn't change the common understanding of the concept.
If you purchase a one year t-bill today, there will be a rate associated with it that will cause your purchase price to grow to the $1,000 maturity value. Is there any risk about whether or not you will receive the $1,000 maturity value? No. The $1,000, and the rate that got the investment to $1,000, are guaranteed, and "risk free." No amount of inflation can cause this rate to change. Neither I (nor anyone else) is arguing that the $1,000 received at the end of the year has purchasing power equal to $1,000 today. Giving that I am not professing such a thing, it is baffling why you keep arguing against a point that no one is making.
This concept is both so simple, and so basic to the field of finance that it is puzzling why you are arguing so adamantly against it.
A friend of mine is sitting on 500k in cash in an IRA and needs to invest it for retirement income. They want to get a minimum of 5% risk free return PLUS have the flexibility to cash out of an investment if they feel the market is turning.
What might be some strategies for him to achieve a 5% risk free return ? Or is that even possible. He is 64.
Looks like you missed the important part of the post, so here it is again:
If you purchase a one year t-bill today, there will be a rate associated with it that will cause your purchase price to grow to the $1,000 maturity value. Is there any risk about whether or not you will receive the $1,000 maturity value? No. The $1,000, and the rate that got the investment to $1,000, are guaranteed, and "risk free." No amount of inflation can cause this rate to change. Neither I (nor anyone else) is arguing that the $1,000 received at the end of the year has purchasing power equal to $1,000 today. Giving that I am not professing such a thing, it is baffling why you keep arguing against a point that no one is making.
This concept is both so simple, and so basic to the field of finance that it is puzzling why you are arguing so adamantly against it.
just keep thinking if you have negative real returns on your investment it is not a risk because it gave you a constant rate of interest .
so are you trying to tell us real returns on your money don't count if they are negative ? because that is what you are trying to tell us .
whatever you want to believe is up to you. you have been warned , bonds ARE A RISK
the interest rate being constant is risk free , bonds are not . it still does not make bonds risk free because they carry both interest rate risk if you have to sell before maturity as well as carry inflation risk.
like i said , want to call that a risk free investment go a head if that is risk free to you . i would never recommend a bond as risk free- ever- done!
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
