tag:blogger.com,1999:blog-5465015914589377788.post3229519780281397332..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: What the Experts Get Wrong about InflationMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-5465015914589377788.post-69530177963160196632020-08-08T09:50:46.232-04:002020-08-08T09:50:46.232-04:00Anonymous: All true. This makes it possible that l...Anonymous: All true. This makes it possible that long-term bonds will give returns that aren't terrible. Another possible outcome is a period of high inflation that makes them give significant losses. In my own portfolio, I choose to make my fixed-income component safe, which excludes the use of long-term bonds.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-82983942112402170482020-08-08T00:39:41.234-04:002020-08-08T00:39:41.234-04:00About long term bonds, the following are some comm...About long term bonds, the following are some comments. By taking the difference between inflation indexed bonds and nominal bonds, you can get the market's inflation prediction (the wisdom of crowds). Insurance companies and pension funds tend to have long term nominal obligations. So conventional wisdom is that they drive down the yields of long term nominal bonds. Finally, long term government bonds have some interesting diversifying properties, especially in market crashes. Finally, although I think it very unlikely with fiat currencies, don't exclude deflation. In the Depression, prices went down 25%. So the risk management properties of long term government bonds may alter demand and therefore the yield of them. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72193746119531175342020-08-04T13:39:37.650-04:002020-08-04T13:39:37.650-04:00Hi Eric,
You're welcome. Over the years I...Hi Eric,<br /><br />You're welcome. Over the years I've benefited greatly from reader comments.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-17756989235608344442020-08-04T13:18:00.707-04:002020-08-04T13:18:00.707-04:00Thank you for alerting me to this risk in long ter...Thank you for alerting me to this risk in long term bonds. <br />And thank you for writing for our benefit. Eric Darwinhttps://www.blogger.com/profile/01042460139621819388noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-55571873591892486702020-08-04T11:54:01.263-04:002020-08-04T11:54:01.263-04:00Hi Samson, I'm afraid I don't agree. It...Hi Samson, I'm afraid I don't agree. It's true that it's not hard to imagine a bad outcome for bonds right now, particularly long-term bonds. However, it's not hard to imagine a bad outcome for stocks as well. I don't trust my ability to judge the relative risks of stocks and bonds, so I don't try. I avoid long-term bonds (but hold short-term fixed income) to reduce a risk rather than to trade it for other risks. I choose my asset allocation based on my life situation (now a fairly young retiree) rather than my outlook on different asset classes.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-90928313996620629572020-08-04T11:42:16.017-04:002020-08-04T11:42:16.017-04:00True, it's always a good time to pay down debt...True, it's always a good time to pay down debt (guaranteed high ROI). That said, here's my point: Assuming that you don't have any outstanding debt and that you're investing into broad-market assets, that seems to suggest that increasing the equity portion of your portfolio is less risky than it used to be in the past.Samsonhttps://www.blogger.com/profile/17734252866482915903noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-35477220390119348192020-08-04T11:27:15.755-04:002020-08-04T11:27:15.755-04:00Samson: I would say that the gap between the risk ...Samson: I would say that the gap between the risk of stocks and the risk of long-term bonds is smaller than it appears when we take inflation risk into account. However, stocks are still risky, particularly individual stocks. With the prices of both stocks and bonds very high right now, we have lots of risk everywhere. But cash pays very low interest now as well. If I were still in my working years, I would consider now to be a good time to pay down debts (not that I ever thought there was a bad time to pay down debts). Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-10918765565636745342020-08-04T11:20:18.519-04:002020-08-04T11:20:18.519-04:00Good point, Michael. Using that logic in reverse, ...Good point, Michael. Using that logic in reverse, does that mean that stocks, which is traditionally deemed riskier than fixed income, are safer than they look in a low-interest environment?Samsonhttps://www.blogger.com/profile/17734252866482915903noreply@blogger.com