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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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How Should You Invest In These Uncertain Times?

FYI: It looks like a perfect storm. There’s talk of the President’s impeachment. The rumors, alone, could hurt global markets. Experts say a recession is coming. Several economic forecasts say inflation is on the rise. It could hit 12 percent or more.

Home mortgage interest rates might soon hit double digits. Tensions in the Middle East are heating up again. The Middle East is threatening to limit the sale of oil to the west. Some forecasts say fuel shortages might be coming. That could mean day-long lines to put gas in your car. There’s even risk of Nuclear war. At least one rogue nation is stepping up aggression.

These are uncertain times. Many people wonder how to protect their investments. Others haven’t yet started to invest. They’re afraid to commit because nothing seems stable.
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/how-should-you-invest-in-these-uncertain-times

Comments

  • edited October 2019
    Heard it all before...countless times. All baloney.

    I think the best 100% guaranteed investment right now is I Bonds, paying 2.5% from next month. You are guaranteed to earn 0.5% above the rate of inflation if you buy before Oct 31. So when the doomsters predictions of 12% inflation come true you will be able to sleep at night, knowing you are making 12.5%.

    Or just ignore the noise and stay with your long term goals as I intend to do.
  • edited October 2019
    Pretty much agree with @Simon.

    Watch out buying bond funds, however. They don’t behave the same way individual bonds would. You’ve got expenses. You’ve got inflows and redemptions which in some circumstances can very much affect your return. Likely the fund is laddered among various maturity dates and probably holds cash. These funds, particularly the longer maturity ones, do react near term to market interest rate swings. You can loose money in an I-Bond fund (as in most any bond fund).

    To get the I-Bond inflation protection Simon mentioned, you’re better off owning the bonds themselves. Even than, your bond could sustain near-term temporary “paper” losses if rates rose. However, held to maturity you will receive back your principal, the guaranteed fixed-rate of interest plus the inflation premium.

    I’m leery enough of bond funds in general that I usually sidestep the ones that focus on this or that particular type of bond. I’d rather have a broadly diversified fund like RPSIX or even DODLX that can utilize in house active management and allocate more broadly across credit quality, duration and currency markets.

  • I Bonds, paying 2.5% from next month. You are guaranteed to earn 0.5% above the rate of inflation if you buy before Oct 31.
    If you buy before Oct. 31, the bonds you receive will pay 1.90% through March of 2020. That's the way Series I savings bonds work. You get the current inflation adjustment (1.4%) for the first six months you own the savings bonds regardless of which month you purchase them in, then the you get the next inflation adjustment (2.0%) for six months, and so on.
    The 1.90% composite rate for I bonds bought from May 2019 through October 2019 applies for the first six months after the issue date.
    https://www.treasurydirect.gov/news/pressroom/currentibondratespr.htm

    The argument for buying now:
    The current I Bond fixed rate is 0.5%. That is the highest it has been since early 2009 when it was 0.70%. In this falling interest rate environment with low Treasury yields, I think it’s likely that the I Bond fixed rate will fall. For five of the last ten years, the fixed rate has been zero.

    If you buy I Bonds for the long-term, the fixed rate is the most important consideration, and it may be at a peak. We won’t know the next I Bond fixed rate until November 1st when the Treasury announces the changes.
    https://www.depositaccounts.com/blog/inflation-treasury-series-i-savings-bonds/

    Whether you buy now or buy in November, it's unlikely that the savings bonds will pay 2.5% next month. (I've no complaints with 1.9%, tax deferred, state tax exempt.)
  • edited October 2019
    Thanks for clarifying, msf. It's all a bit quirky with I Bonds, the fixed and variable combination depending on your time of purchase. So am I right in thinking that if you buy a bond before Oct 31 you will lock in the 0.5% fixed rate but not start to earn the new variable rate of 2.00% until April 1? If so, I apologize for the inaccuracies in my post above. That's still a very sound guaranteed 12 month rate of 2.2% which compares favorably to ultrashort or short investment grade bond funds, where there is always a risk to your principal, no matter how small.

    Edit: David Enna (aka Tipswatch) writes very eloquently on US Treasury products. Here is his latest piece on I Bonds:

    https://seekingalpha.com/article/4296250-bond-investors-act-now-delay
  • You got it. Worth highlighting from the article you linked to:
    You can redeem them after one year, costing you three months of interest. Or redeem them after five years and pay no penalty, or just hold them for 30 years and cash out.
    Note that there is absolutely no way to redeem the savings bonds in less than a year.

    I'm looking at swapping some older savings bonds for these higher yielding 0.5% fixed rate bonds before the end of the month. That will start a new clock going, but I hold these as "secondary cash", so I'm okay with that.

    Or I may just continue holding the older savings bonds for awhile (as well as buying the new ones). 2.02% tax deferred, state tax exempt is not a bad deal in this low interest rate environment. And that comes with, as your article describes it, "fantastic flexibility."

    Some frames of reference: current 3 month and 6 month zero T-bills up for auction are anticipated to yield slightly over 1.6%. (From Fidelity's site.) Vanguard's Treasury MMF ($50K min) has a current SEC yield of 1.85%, APR of 1.87%. That's gradually declining and is not tax-deferred.
  • edited October 2019
    @Simon and @msf

    I'm attempting to determine the value of purchasing the I-bonds vs STPZ , LTPZ or a TIP's fund, be it active managed or ETF.

    I-bonds, direct purchase have an annual dollar limit per individual, yes? I suppose an individual question would be whether the dollar limit would have a meaningful impact upon an overall portfolio.

    TIP type funds have no dollar limit for purchase.

    TIP funds will also follow in capital appreciation (price) in sentiment with yields when moving lower, as with most other bond types. TIP's are part of a safe haven investment along with other Treasury issues. And the investor may buy or sell when the trend changes.

    ADD:
    account type was not noted, so I don't know whether the I-bonds are in taxable or tax sheltered account, if this matters.

    Thanks for your time.
    Catch
  • At age 85+ with a cash sale of our home this year, I find it difficult to buy investments that pay a lot of taxable gains. So I have looked at tax managed funds and/ or municipal tax free funds. I would like to stay mostly in the tax rate of 12% . Most of our income is SS, RMD, and some qualified dividends and small amount of capital gains. Any ideas to look for would be so helpful. I thought about CD's, a ladder of bullet bond funds. I own a small variable annuity that could be added to. Thanks for your input.
  • edited October 2019
    catch22 said:

    @Simon and @msf

    I'm attempting to determine the value of purchasing the I-bonds vs STPZ , LTPZ or a TIP's fund, be it active managed or ETF.

    I-bonds, direct purchase have an annual dollar limit per individual, yes? I suppose an individual question would be whether the dollar limit would have a meaningful impact upon an overall portfolio.

    TIP type funds have no dollar limit for purchase.

    TIP funds will also follow in capital appreciation (price) in sentiment with yields when moving lower, as with most other bond types. TIP's are part of a safe haven investment along with other Treasury issues. And the investor may buy or sell when the trend changes.

    ADD:
    account type was not noted, so I don't know whether the I-bonds are in taxable or tax sheltered account, if this matters.

    Thanks for your time.
    Catch

    I can’t answer that Catch. But thank you for the opportunity to correct my earlier post above. I mistakenly assumed I-Bonds were the same as TIPS. Of course they aren’t (though I assume the inflation protection works similarly). So it was TIPS funds I was talking about - not I-Bonds.

    My guess is that I-Bonds are purchased in the same manner one would purchase regular savings bonds (but I may be corrected). Below is an interesting linked article re the suitability of I Bonds and TIPS as well as TIPS funds for tax sheltered accounts.

    My earlier point was to caution against rushing into funds that offer inflation protected bonds on the assumption you can only make money. You should do OK - but not assured for the reasons I noted earlier. BTW - TRP offers at least 2 TIPS funds, one of which is a shorter term version and less susceptible to interest rate movements.

    https://www.marketplace.org/2009/04/10/i-bonds-roth/

  • @catch22: In the past, on could find "enhanced cash" funds - what I called "secondary cash" above. Post 2008, it's hard to find anything similar outside of Australia.

    For me, series I savings bonds serve the same role, and I stocked up before 2008, when purchases were not limited and the fixed rates were significantly higher. Since then, between the fact that purchases were capped and the fixed rates were effectively zero, I've nibbled only slightly.

    You are correct in pointing out that even if one likes investing in savings bonds, the impact is limited. That's another reason to think of these more as a cash alternative and less as a major portfolio allocation.

    Personally I'm disinclined to invest in inflation-linked products. While there's always the possibility of inflation rising rapidly, I'm guessing that it won't, and if it does that some part of my diversified equity portfolio will provide cover.

    My interest in series I savings bonds is not for inflation protection. Rather, I expect them to outperform cash regardless of short term (6 month) inflation fluctuations, while having nearly the same liquidity as cash, plus tax advantages.

    That latter point goes to your question of what type of account: taxable, since federal debt instruments are tax-favored (at the state level), and you lose that with IRAs. Besides, the income from savings bonds is deferred anyway. Unlike income from TIPS.

    IMHO, to the extent that one does better with TIPS (or any bond) fund, it is because of the longer duration and interest rate risk one is assuming. Over the past several years, they do not seem to have been worth that risk.

    Using your funds as examples, STPZ has returned 1.10% (annualized) over the past five years, 1.57% over the past ten. Not much better than cash.

    LTPZ has done much better, returning 4.16% and 5.80% over the same time periods. But it has done that with a 20+ year duration in an era of declining interest rates. EDV, which invests in straight treasuries, has returned 7.20% and 9.29% respectively over the same periods. PEDIX's returns are very similar (7.20% and 9.58%). I'm not betting on that long term downward trend continuing.
  • @hank - interesting that the article you posted says the same thing as I did about I-bonds being tax-efficient. But with respect to its comment that TIPS are better left to IRAs, that may be true for TIPS, but not for TIPS funds.

    From the prospectus for TRBFX:
    if you held Treasury inflation-protected securities directly, you would be subject to tax each year on the net inflation adjustments even though you would not receive such amounts until the security matures. By investing in a mutual fund that holds these and similar securities, you will receive distributions representing net inflation adjustments as they are realized by the fund.
  • edited October 2019
    “Personally I'm disinclined to invest in inflation-linked products. While there's always the possibility of inflation rising rapidly, I'm guessing that it won't , and if it does that some part of my diversified equity portfolio will provide cover.”

    I’m guessing it will - but am also disinclined to own inflation-linked products for pretty much the same reason(s). I’ve always kept a tilt / overweight towards nat. resources and other funds that would benefit from inflation. Of course, equities in general also offer some protection.
  • Simon said:

    You are guaranteed to earn 0.5% above the rate of inflation if you buy [Series I savings bonds] before Oct 31.

    The fixed rate on new savings bonds is 0.20%. Anyone nibble on the old rate?
    https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#fixed
  • edited November 2019
    Oh to be young again, less risk averse, and more needy financially. Nothing uncertain about the market (S&P/ NASDAQ) at all time highs amid outflows from equity funds, near record inflows into money market funds and bears at a two decade+ high in the Barrons Big Money poll. Uncertainty creates opportunity. Be interesting to see what the historically strongest months of November and December have in store for this “uncertain” market.
  • edited November 2019
    I constantly debate going more conservative or stashing away some extra cash. After agonizing awhile, the best answer always surfaces as, Do nothing . I’ll shuffle different sleeves around on a pie chart, rename them, combine them, slice & dice them. But when all’s said and done, the actual allocations / investments work out about the same as they now are. So why change anything?

    Yesterday the Dow fell around 200 points. My portfolio actually gained a bit. (Good, because I don’t like volatility) Gold was strong along with alternative fund TMSRX. That one is proving to be a real “wild card” if nothing else. Can never figure out what causes it to move on any given day. Yesterday it gained 0.30%.

    Yeah - Getting older puts on some unpleasant and unwanted constraints. Damn.
  • edited November 2019
    Psychologically, what helps me (in these uncertain times) is having already set up my multi year "withdrawal" bucket for retirement. The rest of the portfolio I let ride in a balanced portfolio and don't worry about trying to time a down term. I'm still working full time and plan to work part time next year, so the W-bucket allows me not to change those plans and if I want to stop working altogether, even if the market crashes, I still have that multi-year safe bucket where I can let the market recover.

    In any case, the safe bucket has allowed me to not worry about what the financial market has instore.
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