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And my husband and I made a decision last night. Over the course of many years - I have felt comfortable keeping as little as 3 months in living expenses in cash. We plan to increase those cash levels to about 2-3 years for the indefinite future. Robyn
Note that I hate the current investment environment. And my husband and I made a decision last night. Over the course of many years - I have felt comfortable keeping as little as 3 months in living expenses in cash. We plan to increase those cash levels to about 2-3 years for the indefinite future. Robyn
Wow!!! Robyn - I was quite surprised at your "up to now" living expense/cash timeframe. I know you are a serious guru in the investment arena, most especially in bonds. But that short timeframe was a surprise.
I've been an ultra conservative type (for me, no opinion regarding others) of having 5 years in cash just so I don't have to think about it.
The benefit of the current environment is that "sitting cash" isn't really losing much to opportunity cost, but regardless - I've always looked at cash as my best defense against unknowable and rude surprises. Yes, I've lost in not utilizing it more effectively but I don't loose any sleep about the intermediate future. JMO
Read my message again. It says "as little as" - not that 3 months is SOP. A year is more like it. Keep in mind that we're about 95% in bonds - and that part of our portfolio is always rolling over every year (and I am pretty certain when I'll be getting most of that money). It's kind of a bond ladder - but with uneven rungs. Very unlike a portfolio that is heavy in equities - where money doesn't come in in big chunks unless you decide to sell something. So - say for example - I know that X is coming in within the next 3 months - and there is a terrific buying opportunity today (like there was during the Meredith Whitney muni meltdown in early 2011 - I'll get down to a bare minimum in cash (basically reinvesting the money I know I'll be getting pretty soon).
I've never had 5 years in living expenses in cash. It is possible I might get there this year in today's fixed income investing environment. But unlikely as long as I can still get decent returns in munis and mediocre returns in brokered CDs in our IRAs.
FWIW - one reason we picked the 3 year number is because although my husband knows a little about fixed income - he doesn't know as much as I do. And - although I have no serious health issues now - I could get hit by lightning or drop dead from a heart attack tomorrow. Three years is enough time IMO for my husband to get up to speed - and figure out what he wants to do (which might be very different than what I'm doing) - if something were to happen to me. Takes the pressure off him.
Note that I have had a very good friend in Minneapolis for a couple of decades now. He's basically a fixed income portfolio manager who deals mostly with non-institutional clients. Met him on a Compuserve investment chat board ages ago. I told my husband that if I die suddenly - that he should go to Minneapolis for a couple of days - have Mr. X go through our portfolio - and explain it to him. Pay whatever it costs. Listen to his explanations and his recommendations - while taking them with a grain of salt. Because a professional money manager can't do what I do. Like buying an odd lot of 25 secondary market bonds that may be cheap compared to larger institutional offerings. Heck - some of the best deals I see on line are for really small lots of bonds or brokered CDs - like $1000-$5000. Too small for me. But perhaps ok for someone who has like $100k to invest and wants to diversify. Robyn
you have to be real careful with mortgage reits and read those reports carefully. many times those high dividends arent really that high and include a return of capital dropping your share price to match, or use borrowed money to sustain those payouts or the money comes from isolated events not associated with the reit income..
both most un-good and both slide right under the radar to the untrained eye on those quarterly reports.
im not saying thats the case with yours but just in general be careful.. in a world of low low rates a 14% payout bears watching where its coming from..
Same caution flag applies to other investments as well. My father owns a closed-end exchange-traded mutual fund because he says it pays 6%. It does pay a minimum of 6%. But - if it doesn't earn 6% (which it hasn't for a while) - it pays whatever it takes to make that 6% mark out of principal. I would have sold the thing a long time ago - but he likes owning it - and refuses to let me sell it. My father is 93 - and I guess he likes being able to look up his one stock every day. Luckily - this holding is a very small % of his portfolio (which I manage). So - if it makes him happy - I'm not going to get into a big fight with him about it. Robyn
This issue impacts Seniors who have lost not only their retirement interest income, but also a chunk of their retirement income just to get by. Savers of all ages are impacted by the FOMC's Zero Percent Savings Interest Rate Policy.
This issue is important because financial institutions are represented in the Federal Reserve Banking System that makes monetary policy, which benefits the banks and punishes consumers.
Senator Bernie Sanders introduced "Federal Reserve Independence Act" S.3219 to prohibit banking industry executives from serving as directors of the 12 Federal Reserve regional banks. The recent multi-billion-dollar trading loss at JPMorgan Chase underscored the need to structurally reform the Federal Reserve System to make a more democratic institution responsive to the needs of ordinary Americans, not just Wall Street CEOs."It is a blatant conflict of interest for Jamie Dimon, the CEO and chairman of JPMorgan Chase, to serve on the New York Fed's board of directors," Sanders said. "If this is not a clear example of the fox guarding the henhouse, I don't know what is." [End Fed Conflicts by Senator Bernie Sanders, May 30, 2012].
The petition will be delivered to Ben Bernanke and the FOMC, as well as to President Obama. The President needs to read the gut-wrenching stories written by Seniors who have lost their retirement savings in the fallout from the FOMC's zero percent savings interest rate policy.
All readers who feel that the lives of Seniors and ordinary people destroyed by banking industry executives decisions is important can help out by signing the petition today. The next meeting of the FOMC is scheduled for June 20, 2012.
Your help is very much appreciated!
I understand your position and have some (but not a whole lot) of empathy for people who "played by the rules" and think they're getting shafted now. Unless they're really really old (like 80+) and/or have dementia. I did not foresee today's interest rate environment (and when I say today - I mean today - not the last 3 years). But always looked at my fixed income investments in terms of - more or less - a dollar cost averaging approach. Sometimes rates are higher - sometimes they're lower.
If you had wanted to lock in all your income 2-3-4-5 years ago - you could have bought a 30 year tbond yielding perhaps 4-5%. If you're dealing with munis - 10 years is about the best possible call protection - but 4%-5% has been totally possible (and is still possible in terms of YTM today - although not YTC - which is more like 3%). You could have bought 30 year IBonds with coupons of 3-3.5% plus inflation kickers 10 years ago (they are currently yielding over 6%). Even as late as a week ago - you could buy a brokered non-callable 10 year CD at 3% (they're 2.75% as of the close Friday).
IOW- the only people who are getting 100% shafted by this are people who have lived or died by the sword of short term CDs - and that's it. Because they're ignorant or lazy or too old to do anything else - or a combination of the above. When we moved my late FIL here to a SNF in 2002 - almost all of his money was in short term CDs. And the yield on his total portfolio was < 1% (yes - that was back in 2002). And I redeployed his money in very safe fixed income investments then. And got him about 5-6%. Yields are lower today than in 2002. Today - if I were to take over over his portfolio - I'd probably be looking at more like 3-4% than 5-6%. But not zero.
And you have to tune into the real world. Interest rates on short term government and government guaranteed debt are garbage in every so-called "safe" part of the world. The German 2 year yield turned negative for a period of time on Friday. Six month LIBOR closed at .73%. Just be glad we're not Greece (at least not yet). Where things like pensions (government and otherwise) are being cut left and right and major drug/medical companies won't even ship stuff to Greece because it isn't paying its bills.
BTW - how do you propose to raise the savings interest rate? Just kicking bank people off the FRB institutions won't cut it. E.g., how would you feel about replacing every banker in a FRB position with a builder? Robyn
This issue impacts Seniors who have lost not only their retirement interest income, but also a chunk of their retirement income just to get by. Savers of all ages are impacted by the FOMC's Zero Percent Savings Interest Rate Policy.
Some people in this country, including myself are benefiting from low interest rates. The government benefits because it allows us to finance our high deficit at a relatively low cost. This benefit is actually a benefit to every taxpayer in this country.
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This issue is important because financial institutions are represented in the Federal Reserve Banking System that makes monetary policy, which benefits the banks and punishes consumers.
As they should be. People familiar with financial services ought to be heavily represented in the system.
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Senator Bernie Sanders introduced "Federal Reserve Independence Act" S.3219 to prohibit banking industry executives from serving as directors of the 12 Federal Reserve regional banks. The recent multi-billion-dollar trading loss at JPMorgan Chase underscored the need to structurally reform the Federal Reserve System to make a more democratic institution responsive to the needs of ordinary Americans, not just Wall Street CEOs."It is a blatant conflict of interest for Jamie Dimon, the CEO and chairman of JPMorgan Chase, to serve on the New York Fed's board of directors," Sanders said. "If this is not a clear example of the fox guarding the henhouse, I don't know what is." [End Fed Conflicts by Senator Bernie Sanders, May 30, 2012].
Conflicts of interest are not always wrong. They do need to be disclosed though. Bernie Sanders is too liberal even for me and I intend to vote reelect Obama President. JP Morgan's loss is overemphasized. They aren't getting credit for some of the things they've done that have been profitable since the crash back in 08'.
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The petition will be delivered to Ben Bernanke and the FOMC, as well as to President Obama. The President needs to read the gut-wrenching stories written by Seniors who have lost their retirement savings in the fallout from the FOMC's zero percent savings interest rate policy.
The savings rate can't be raised without raising lending rates as well. A percent or two increase in lending rates might be the final death blow to the building industry in this country in the economic climate we are in. Are you able to see that? On the contrary, if this economy starts downhill again, we may need a QE3.
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All readers who feel that the lives of Seniors and ordinary people destroyed by banking industry executives decisions is important can help out by signing the petition today. The next meeting of the FOMC is scheduled for June 20, 2012.
Again, we have someone compartmentalizing and looking out for the interest of his own group rather than for that of the country. Nothing new there. I see hordes of people in this country anymore who would throw this group or that group "under the bus" if it would gain them some temporary advantage. Its a pathetic thing to see. Interest rates will increase naturally on their own, once this economy gets back on its feet. That is happening, very slowly. We have about 2% GDP growth. It may take until 2014, but we are going to eventually get back to where we need to be. A lot of things are weighing this economy down. The European Debt Crisis seems to be the foremost problem right now. We'll get through this, but not by playing one group off against another.
markg91359 "....Again, we have someone compartmentalizing and looking out for the interest of his own group rather than for that of the country. Nothing new there. I see hordes of people in this country anymore who would throw this group or that group "under the bus" if it would gain them some temporary advantage. Its a pathetic thing to see. Interest rates will increase naturally on their own, once this economy gets back on its feet. That is happening, very slowly. We have about 2% GDP growth. It may take until 2014, but we are going to eventually get back to where we need to be. A lot of things are weighing this economy down. The European Debt Crisis seems to be the foremost problem right now. We'll get through this, but not by playing one group off against another."
Your noted comments are some of the most salient and common sense remarks I've seen lately (though in truth, I don't spend a lot of time reading assessments by anyone, but I usually read yours because they are worth the time to peruse. I don't always agree with you but your posts are worth reading.)
I've been frequently bemused at the propensity of many to develop a "I'm a victim/let's blame somebody" mentality. It does, IMHO, bespeak a lack of a simple exposure to financial history, even if we limit that to our (US) relatively short duration. Whether its the robber barons of yesteryear or the current demons of Wall Street, somethings never change; nor does a reasonable person expect them to, IMO.
For those suffering under declines in the interest rate return levels, know that many youngsters are being immensely benefitted by the lower rates they (and all others) can snag for long term purchases, e.g., 30 yr. mortgages. The current tremendously lower rates also tend to hold down costs of many of one's necessary expenses. I won't digress on a lecture of the economic impact of lower rates - but - many services and items are less costly due to the current interest rate environment. IMO. This is an opportunity of multi-generational breadth for many people.
The ebb and flow of financial markets is rather like the weather - only an idiot is unaware that it will change, one would think that most folks are aware of the fact that it will rain, etc.; and plan accordingly. Those who don't plan for and purchase rain gear are - beyond my comprehension.
Last edited by Pilgrim21784; 06-03-2012 at 11:31 AM..
...The savings rate can't be raised without raising lending rates as well. A percent or two increase in lending rates might be the final death blow to the building industry in this country in the economic climate we are in...
A significant part of the problem with the construction industry in a state like Florida is the huge overhang of foreclosures (we're a judicial foreclosure state - so the process of dealing with the foreclosures has been very very slow). And foreclosures cost less (often a lot less) than new construction. Another part of the problem is - at the height of the building boom - there was a lot more construction than we needed (people were buying 2/3 places on spec).
FWIW - I think that the prospect of rising interest rates on mortgages might well induce more people to buy. It's like going out and buying something that's on sale today if you know the sale will be over 2 days from now. OTOH - if you think the price of something will stay the same - or keep on falling - there's no reason to buy it today (unless you absolutely need it). Robyn
I don’t think it’s unreasonable for savers to expect a modest rate of return on safe investments. I believe that those who played by traditionally conservative rules are getting the shaft due to efforts to support unabashed debt-based spending. We are not experiencing a natural “ebb and flow” of financial markets, in my opinion. We are experiencing catastrophic booms and busts and manipulation by financial institutions and their government lackeys. The savers are footing the bill for speculators that cry "bailout!" when their overleveraged bets don’t pay off.
A significant part of the problem with the construction industry in a state like Florida is the huge overhang of foreclosures (we're a judicial foreclosure state - so the process of dealing with the foreclosures has been very very slow). And foreclosures cost less (often a lot less) than new construction. Another part of the problem is - at the height of the building boom - there was a lot more construction than we needed (people were buying 2/3 places on spec).
FWIW - I think that the prospect of rising interest rates on mortgages might well induce more people to buy. It's like going out and buying something that's on sale today if you know the sale will be over 2 days from now. OTOH - if you think the price of something will stay the same - or keep on falling - there's no reason to buy it today (unless you absolutely need it). Robyn
people on other forums laugh at me when i tell them that a rise in mortgages may actually fuel demand.
the truth is we get our best appreciation in homes between 6-7% mortgages.
usually that is a sign the economy is humming and folks are working.
a 1% rise in mortgage rates can be the same effect on a monthly payment as a 10% jump in the house price.
those sitting on the fence may be pushed into action and buy as they want to buy now before rates go up even higher and they can afford even less house.
people on other forums laugh at me when i tell them that a rise in mortgages may actually fuel demand...
I'm not laughing. Super low mortgage rates have perhaps helped the Florida real estate market as a whole a little - but not a whole lot. In the specific area where I live - St. Johns County - which has the #1 rated public school system in the state - the school ratings have helped home sales more than low interest rates. I wouldn't say that our current real estate market here is robust - but it's not at rock bottom now either. OTOH - the 3 sales on our 30 house block in the last year were pretty good (it's a very children friendly block in a children friendly community with excellent - by Florida standards - public schools). Robyn
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