More Draw Down Dilemma

Develop A Contingency Plan For Retirement – Features Here is a quick read about the draw down dilemma retirees face. it cites the 4% number as a good starting point but points out how the number could go up to 6% in a very bad case scenario for equities. My answer to this has always been; whatever you got, 4%. My answer probably means you don’t run out of money but does mean that a meaningful pay cut is in the offing after a bad year or three. That scenario would also have to be mitigated of course but part of that solution is behavioral–depending on your specific situation it could all be behavioral or none of it but mostly likely somewhere in...

Viewer Mail

A reader asks the following; with most usa interest rates now below the current rate of inflation, ie. negative real yields, i know you often speak of what the text book says, does it say anything about what is the usual best of action in this situation of negative real yields? In particular as it relates to income. Do you go with shorter maturities? Longer? Shun utilities? Overweight gold/commodities etc. There is a lot there to try to work through. I may have been interviewed on Monday about this topic (not sure if the brevity of the email exchange constitutes an interview) and so I’ll expand on those answers. The current state of yields is problematic if you have cash earmarked for fixed income, as I do as a couple client holdings have matured or been called away. Locking in less than 4% for five or ten years seems like a very bad idea (I am not really looking to buy fixed income for a trade). The short version of this post would simply be that I think the best thing for most folks is to just be patient. I think it is unlikely that yields stay unacceptably low for a long time but I have to say that Nicole Elliott’s warning notwithstanding I did not expect the ten year to go so low in yield. A few years ago yields were too low, I waited, and eventually there was a window for a few months where two year treasuries yielded 5-5.25% and so I was lucky to pick up some yield then. Yields will go up at some...

Viewer Mail

A reader asks the following; with most usa interest rates now below the current rate of inflation, ie. negative real yields, i know you often speak of what the text book says, does it say anything about what is the usual best of action in this situation of negative real yields? In particular as it relates to income. Do you go with shorter maturities? Longer? Shun utilities? Overweight gold/commodities etc. There is a lot there to try to work through. I may have been interviewed on Monday about this topic (not sure if the brevity of the email exchange constitutes an interview) and so I’ll expand on those answers. The current state of yields is problematic if you have cash earmarked for fixed income, as I do as a couple client holdings have matured or been called away. Locking in less than 4% for five or ten years seems like a very bad idea (I am not really looking to buy fixed income for a trade). The short version of this post would simply be that I think the best thing for most folks is to just be patient. I think it is unlikely that yields stay unacceptably low for a long time but I have to say that Nicole Elliott’s warning notwithstanding I did not expect the ten year to go so low in yield. A few years ago yields were too low, I waited, and eventually there was a window for a few months where two year treasuries yielded 5-5.25% and so I was lucky to pick up some yield then. Yields will go up at some...

Tuesday Tidbits

One newsletter I read daily, or whenever it gets published, is from Jack Crooks. Yesterday’s letter talked about something I have touched on quite a few times in the past. He talked about someone who said to him that he (Crooks) seemed unsure on his thesis that the dollar will go up in 2008. Crooks proceeded to delve into how he spends a lot of time exploring any thesis for why he might be wrong. This is very important to understand for anyone who goes narrower than a three ETF lazy portfolio. The way I think of it is that every portfolio is vulnerable to something (actually more than one thing) and it is important to know what you are vulnerable to and if or when your weak spot might hurt you and then what to do about it, if anything. This is why I think people like Kudlow offer so little. As I have said before, there is no need to protect against the rosy scenario he kept espousing. But since the market does not go in one direction anyone interested protecting against down a lot must stay in touch with what threatens his portfolio or the overall market. From the alternative assets file I found this article about freight futures on Alphaville. In the last couple of years, and I am sure over the next couple of years too, there have been products created to invest (or speculate) in all sorts of things that don’t correlate directly with stocks. Anyone buying into the idea that we will have to endure below normal returns in the equity markets...

Tuesday Tidbits

One newsletter I read daily, or whenever it gets published, is from Jack Crooks. Yesterday’s letter talked about something I have touched on quite a few times in the past. He talked about someone who said to him that he (Crooks) seemed unsure on his thesis that the dollar will go up in 2008. Crooks proceeded to delve into how he spends a lot of time exploring any thesis for why he might be wrong. This is very important to understand for anyone who goes narrower than a three ETF lazy portfolio. The way I think of it is that every portfolio is vulnerable to something (actually more than one thing) and it is important to know what you are vulnerable to and if or when your weak spot might hurt you and then what to do about it, if anything. This is why I think people like Kudlow offer so little. As I have said before, there is no need to protect against the rosy scenario he kept espousing. But since the market does not go in one direction anyone interested protecting against down a lot must stay in touch with what threatens his portfolio or the overall market. From the alternative assets file I found this article about freight futures on Alphaville. In the last couple of years, and I am sure over the next couple of years too, there have been products created to invest (or speculate) in all sorts of things that don’t correlate directly with stocks. Anyone buying into the idea that we will have to endure below normal returns in the equity markets...