I can thank my Economic History class, @AttorneyMother – that is what convinced me that even though short term rates were at 16-17%, 10% federally insured until I turned 60 was a mighty fine deal, especially since I could choose to take the money and run if I had wanted at any 5 year anniversary. Wells only offered it for about two years, sadly, but they’ve been stuck with me ever since. Back in the day you needed more than I was able to contribute to open a mutual fund IRA, though that would have worked very nicely, too.
@IxnayBob - is the Spartan (Fidelity) US Bond Index Fund, Advantage Class what you’re talking about when you say TBM? (We’re with Fidelity now, so we try to buy Fido stuff for simplicity sake, but I think we can buy some Vanguard stuff in our Fido account.)
I am not sure how I feel about International. As you say, it’s not really suited to passive investors, especially in emerging markets. I will keep what I have, but not add any to it. If there’s money to be made in those markets, let Apple and IBM and whomever make it, and bring it home for me I don’t have faith in accounting standards in many of the countries.
The problem with a “long term view” on bonds is that bond yields have been in a downward slump for essentially 35 years. We have never started from 0 before and headed up. It’s a different scenario than any boomer has experienced before. Personally, I keep cash in a money market, special situations/spinoffs, and merger arbitrage when yields are low and stocks are high. By the way @AttorneyMother , don’t be so hard on those of us in the investing business. There are good ones who make intelligent decisions…that invest their own money exactly as they invest client funds…that strive to reduce costs and taxes so that everyone benefits. I admit that the industry is an awful one, full of pickpockets, but there are those who fight against that. Just so you know…
@arabrab, by TBM I mean Vanguard’s Total Bond Market specifically, but as I understand it Fidelity’s Spartan offering is roughly the same. It’s a broad based index with very low ERs. My understanding is that, in non-401k accounts, Fidelity won’t let you own Vanguard Admiral class (lowest ER), and most likely Vanguard returns the favor
@Parent1337, as long as credit issues don’t enter the fray (which I don’t expect, Congress notwithstanding), I’m relatively comfortable riding the bond yields back up. There is not that much mystery about the relationship between yield and price, at least for stable governments.
@parent1337 , I don’t think I painted with a broad brush; I just recounted a personal story. If it weren’t counter to net anonymity, I’d post a link to this house. We could all enjoy their fantastic taste and perhaps consider the remunerative value of that profession. I did not say these advisors were unscrupulous–just prosperous–and we can all agree that their fees were part of their compensation. Maybe they also ate their own cooking. Who knows? Maybe they got their clients in on APPL and GOOG and had crystal balls, who knows.
This is a thread where we all volunteer to help each other out. Those who don’t think the advice is here is worth what they pay are welcome to say otherwise.
Now, if you want to talk about a more reviled profession, I think it’s part of my name, not yours, IYKWIM. My conscience is clear (as is yours) and that’s all that matters to any of us. Cheers.
Parent1337, I share some of your concerns about the bond market.
Your clients are engaging in merger arbitrage and special situations including spinoffs as a way cut their asset allocation in stocks?
In a merger situation, your clients are investing in the company to be acquired? Maybe shortselling the acquirer? Are you using derivatives like stock options?
@AttorneyMother I hope this man was one who ate his own cooking and that is what led to his prosperity. It’s a good feeling when all benefit. I didn’t mean to pick on you specifically–sorry about that. This thread has a propensity to bash advisors and sing the praises of index investing. It’s not always the correct song to sing. There are many ways to participate.
@dstark We don’t engage in merger arb and such as a way to cut an allocation to stocks but more as a way to entertain idle cash. I think the market flows naturally–when bargains abound, cash is easy to put to work. As companies become overvalued and are sold, cash piles up with nowhere to reinvest. Thankfully, the markets are such that M&A ramps up near the tail end of a bull market. We buy the company to be acquired, almost always those being bought for cash only and no stock. There are many opportunities right now. I don’t often use options–I don’t like the constraint of time. I do sell covered calls at times, and use calls for outright speculation on occasion, but that is about all.
I had ideas this week that I would be rich had I retired. So many missed opportunities. Yet I’m so close to retire that I think it’s silly to quit, I want them to fire me but not sure that’s going to happen. I don’t even care for the stupid pension I’m going to get. I might forget about it and not filing for pension when I turn 62.
@Parent1337 , thank you. No harm done. I used to work on M&A transactions and I enjoyed the adrenalin rushes if not the all-nighters. A go-go stock market seems to provide the much-needed currency.
@Parent1337, I just never really thought of these mergers as a cash substitute.
Would you buy OWW? I don’t mean as a recommendation. As a cash substitute? Or would you stay away because of potential regulatory issues?
At the end of bull markets, don’t deals fall apart?
Who are your clients? High net worth people? Institutions?
@dstark Let’s look at this morning’s announcement–A japanese life insurer buying SFG for $115 cash. In the release, they mention SFG will pay the $1.40 annual dividend. Premarket trading at 113.75. So $2.65 for a deal closing in Q1 2016. I will take 2.3% vs. .0000000000001% in a money market. OWW is kind of unique in that it is a decent company that isn’t overvalued even if the deal falls through. The breakup fee is huge. I think the deal closes after some negotiation with the feds. I own it. I have not noticed deals falling through at the end of bull markets if you choose wisely and avoid anything questionable. Even during 2008/9, spreads widened to 20% in some cases, and the deals still closed. I look at my list now and see AEC, NVSL, LABC, REMY, RCPT, HSP, OWW,ISSI, etc. There is always something to do.
Retirement looming and it is scary.
To make myself more at peace with this fact, I decided that we might try to go on much longer vacation as a trail for retirement. I mean 5 to 8 weeks of vacation - as long as our employers could tolerate. I just want to see how it will feel to be not doing anything at all for that long, could I actually tolerate that or it would put me into depression.
In regard to money, I do not have any limits in desire, but we will never have any close to what we would desire (like few millions would not hurt). We would like to be debt free by the time we retire, the current plan is in about 3 years… That is if we continue to be OK heath wise, at this age anything can happen, one can only hope for the best.
MiamiDap, I don’t know anyone who is retired and who spends their days 'not doing anything at all". Why would you think that would be the case? Do you have no other interests? No hobbies? No community organizations with whom you volunteer or would like to? No friends or family with whom you’d like to spend more time?
Parent1337, I will just preface my post by saying you are looking at the deal market. I’m not.
Just talking about myself, I don’t want my cash to have the volatility that you accept.
OWW was trading near $9 before the announced buyout. If the deal falls through, imo the stock is going to trade closer to $9 than $11. The stock is trading closer to $11 than $12 now ( and lower than it was trading a month ago) so there must be some risk that the deal closes.
You can make more money trading these deals than cash because cash has less price risk. You are telling taking me the risk of playing these deals is worth it. Maybe taking the risk is worth it.
I am long BIIB so I probably shouldn’t be sharing my opinion today.
Yes, it’s all about risk/reward. The breakup fee for OWW is ~$1/share. That would help. There is definitely regulatory risk.
I look at the market differently than most I guess. I don’t have any specific asset allocation. It’s all money just sloshing around looking for opportunities. Stocks are the best opportunity as they offer partial ownership in a business that can grow indefinitely. When they are richly valued, I have to find something else to do with the money.
Sorry about the BIIB. Hopefully you have owned it for a long time. I am not happy about what has happened with QCOM lately, but I take solace in the fact that my clients have a basis between 1 and 2.
I don’t believe in index, the last few weeks show that some stocks are better than others. Index investing means you have to pick up basket of stocks that are not the best.
Years ago, Walmart and McDonald were the stocks to own. Not so much now.
@Parent1337, thanks.I have owned BIIB for a long time but my basis is a lot higher than $1 to $2. Very nice on QCOM.
So… Parent1337, you don’t like the valuations in the stock market right now? How much of a correction do you want to see?
I don’t want to talk politics. I want to talk about a proposal that Hillary Clinton is making. She wants to raise capital gains taxes for those that hold investments less than 6 years. The holding period to get the lowest capital gains tax rate would be 6 years. An investor would have to own his or her investment for 2 years to get a lower rate. Otherwise, if you hold an investment for less than 2 years, you would pay the ordinary income tax rate. Each year of holding an investment beyond 2 years would cause a reduction of 4 percent in tax rates. 3 years… 8 percent reduction… Etc.
Warren Buffett, Larry Fink are pushing this because they want people to focus on the long term.
I don’t know. Many of the wealthiest people in this country probably won’t be affected. They don’t have to sell. I am going to think about this.
My state (MA) had a similar system for LTCG a while back, except we had 5 separate CG rates depending on how long you held it, and there were exceptions for certain kinds of stock like stock in startups and non-public stock.
It was complicated, and a big PITA. (This was in the days before TurboTax, TaxACT et. al.). And when we got rid of it the transition period was even more complicated.
My idea is that all stock gains should be taxed as regular income, but if you hold the stock for more than one year you get to adjust your basis upward to match inflation for the period you held the stock.
I don’t have faith in accounting standards in many of the countries.