Historical Market Returns – Part One
The primary subject of my book is comparing the risk premium with risk pooling as a source of funding for retirement goals. An important step is to first make clear what the risk premium is and how it relates to an investment portfolio. Fundamentally, investors prefer certainty to uncertainty. A bond provides a known yield […]
Overview of Stocks and the Stock Market
Stocks provide an ownership stake in a company. They provide access to company earnings based on its future performance. Companies can pay dividends to their stockholders to return profits to the owners, or they could reinvest profits into the firm to lay the foundation for better performance and even larger dividends to owners in the […]
Laddering With Individual Bonds – Part Three
This article is part of a series; click here to view Part 1. Exhibit 1.1 provides reasonable approximations for sustainable spending in retirement as it relates to a bond interest rate (or a fixed return for an investment portfolio) and a retirement longevity assumption. For a sixty-five-year-old with $1 million, the exhibit shows sustainable spending […]
Laddering With Individual Bonds – Part Two
This article is part of a series; click here to read Part One. I would argue that it is much easier for a retiree to ignore unrealized capital losses on an individual bond than for a professional trader or retiree needing to sell bond shares to meet expenses because the individual bond is bought with […]
Bond Pricing 101 – How Are Bonds Priced?
Bonds serve as the foundation of many people’s retirement plans. Because of their reasonably predictable nature they are able to both temper the risk to your investment portfolio from stocks, as well as provide a stream of reliable income when held as part of a bond ladder. However, the mechanics of how bonds are priced […]
Laddering with Individual Bonds
Duration matching is not straightforward for bond funds when shares of the bond fund must be sold to meet ongoing retirement expenses. If rates have risen, shares of the bond fund may need to be sold at a loss, with more shares sold to meet a given spending objective. This triggers sequence risk and locks […]
The Yield Curve and Break-Even Inflation
Understanding the relationship between bond risk and time to maturity and duration of a bond provides the basis for understanding the bond yield curve. The yield curve shows the yields to maturity for a series of bonds—typically US Treasury bonds—with the same credit quality but different maturity dates, along with the term structure for interest […]
The TIPS You May Need – Treasure Inflation-Protected Securities (TIPS) – Part 2
This article is part of a series; click here to read part 1. In 2003, Zvi Bodie and Michael J. Clowes published the book Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals, in which they argued that typical retirement-oriented investors should rely primarily on TIPS for their retirement savings. Of course, other […]
The TIPS You May Need – Treasure Inflation-Protected Securities (TIPS) – Part 1
In discussing retirement liabilities, it is also important to address the issue of inflation and how to think about bonds when they are meant to fund a liability that grows with the consumer price index. Fortunately, this is now practical as the United States began issuing Treasury Inflation-Protected Securities (TIPS) in 1997. Backed by the […]
The Coronavirus and Its Effects on the Market and Your Retirement
Just like many other areas of life, the novel Coronavirus is having a significant impact on the financial markets.
