tag:blogger.com,1999:blog-2807403883562053852.post7287691664452707734..comments2024-03-27T08:40:31.785-06:00Comments on Clayton Cramer.: Losing Hope on Early RetirementClayton Cramerhttp://www.blogger.com/profile/03258083387204776812noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2807403883562053852.post-23864304483841879742014-04-16T09:21:23.248-06:002014-04-16T09:21:23.248-06:00That actually makes sense. Thanks.That actually makes sense. Thanks.Clayton Cramerhttps://www.blogger.com/profile/03258083387204776812noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-4527101890329874082014-04-15T20:26:07.352-06:002014-04-15T20:26:07.352-06:00... but actual municipal bonds. Some are TVA ...
...<i> ... but actual municipal bonds. Some are TVA ... </i><br /><br />TVA bonds are federally taxable so aren't directly comparable to most municipal bonds.James B. Shearerhttps://www.blogger.com/profile/13452342984383895221noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-7389390336638722492014-04-15T14:04:23.633-06:002014-04-15T14:04:23.633-06:00I'm no bond expert, so take the following as j...I'm no bond expert, so take the following as just my reading of things...<br /><br />As to the PR bonds.... the interest rate always reflects a mix of perceived risk and general rates of return. So if a bond is paying higher rates than the market, it's more risky - insured or otherwise. It's the free market at work.<br /><br />With a 30 year bond, you are betting against inflation. Also, if you have to liquidate before maturity, you are betting that yields won't go up. If they do, you have to sell it at a price depressed enough that the yield matches the market.<br /><br />Agree with hga - hard to retire. StormCchaserhttps://www.blogger.com/profile/02998174514362089471noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-47936661360008606202014-04-15T12:49:06.410-06:002014-04-15T12:49:06.410-06:00The markets aren't perfect but they are pretty...<i>The markets aren't perfect but they are pretty efficient.</i><br /><br />Echoing StormCchaser, we're in a period of serious "<a href="https://en.wikipedia.org/wiki/Financial_repression" rel="nofollow">financial repression</a>" so there's no telling how long the establishment will be able to keep the Federal Government's borrowing cost low low low, and e.g. probably negative real interest rates for holding cash (after inflation and taxes).<br /><br />Potentially a very bad time to retire, unless you're really sure you and yours can make it in something edging towards "Mad Max" territory. For medical reasons I call the worse case I plan and prepare for "Argentina".ThatWouldBeTellinghttps://www.blogger.com/profile/16910231314995266781noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-14881890767686953412014-04-15T10:02:04.356-06:002014-04-15T10:02:04.356-06:00I should mention that bonds that are callable usua...I should mention that bonds that are callable usually have higher yields, because of the danger of being called before maturity. A 30 year bond that might be called in 5-7 years can still be a pretty decent choice if you expect the economy to improve in the meantime. (And there seems little room to go but up, unless we descend in Mad Max land.)Clayton Cramerhttps://www.blogger.com/profile/03258083387204776812noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-45869006103326345802014-04-15T08:58:25.429-06:002014-04-15T08:58:25.429-06:00James: Not bond funds, but actual municipal bonds....James: Not bond funds, but actual municipal bonds. Some are TVA, some are various state and city municipal bonds, and these are all 30 year maturity bonds, many of them callable. If you want to live dangerously, Puerto Rico has some insured general obligation bonds with yields above 6%. If they were not insured, I would not even consider them; because they are insured, I would not put more than about 5% of portfolio into them.Clayton Cramerhttps://www.blogger.com/profile/03258083387204776812noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-20083644365216250302014-04-14T23:48:07.282-06:002014-04-14T23:48:07.282-06:00You aren't going to get 6% without a huge risk...You aren't going to get 6% without a huge risk - whether in stocks or the bond market. Arbitrage links those two markets (and all others). Because of the Fed's lousy policies, bonds and stocks are strongly correlated (unlike normal). You may have noticed that if the fed hints at raising interest rates, stocks crater. But when they actually do raise them, bonds crater (principal down, yield up).<br /><br />I'm retired, sitting on my cash, and pissed! Anything that isn't a huge risk is paying less than 1% (3%<br /><br /> if you can hold it for 10 years): See http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield. <br /><br />Bonds are fairly straight forward - you can find calculators online. The price of the bond is inversely related to the interest rate (less so as the term shortens). So if you by a 30 year bond and the interest rate doubles, you lose half your principle!<br /><br />Put another way, when yields go up, those who hold bonds lose. You can't buy bonds and then get better when the yields go up - quite the reverse.<br /><br />I wish I had better news, but 6%? Not a chance!StormCchaserhttps://www.blogger.com/profile/02998174514362089471noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-3354947205740256132014-04-14T22:00:50.183-06:002014-04-14T22:00:50.183-06:00... typically about 4.8 to 5.1% ...
Where are yo...<i>... typically about 4.8 to 5.1% ... </i><br /><br />Where are you getting that much? Is that the SEC yield? I checked Vanguard, their regular muni fund is yielding 3%, their high yield fund 3.3%. Add .2% for fund expenses and this corresponds to yields of 3.2%-3.5% on individual bonds. I wouldn't expect to get more than this without substantial risk.<br /><br />Vanguard's utility fund is yielding 3.5%. The dividends are taxable but should be (at least mostly) qualified so you would get a break on your federal taxes.James B. Shearerhttps://www.blogger.com/profile/13452342984383895221noreply@blogger.comtag:blogger.com,1999:blog-2807403883562053852.post-45006309916729872242014-04-14T06:39:32.240-06:002014-04-14T06:39:32.240-06:00The markets aren't perfect but they are pretty...The markets aren't perfect but they are pretty efficient. Lots of people are looking for bargains so they are hard to find. One thing to be wary of is fake bargains, there are various schemes that are likely to boost yields for a few years but then will have a bad year and lose all your excess returns and more. <br /><br />If you are a real expert in some obscure area like buying tax liens there may be opportunities but there will also be pitfalls that a novice is likely to learn about the hard way. In general you aren't going to find a lot of free lunches.James B. Shearerhttps://www.blogger.com/profile/13452342984383895221noreply@blogger.com