Crying Again: Low Yields and Inflation

[galeno]

The net nominal yield of our 50/50 port = 1.3%.

USD CPI YTD = 5.3%.

Our port has to carry a negative 4% real yield.

I have a bad feeling about what seems to me complete global finance insanity.

[steelpony10]

Sept 27, 2021 11:15:36 GMT galeno said:

The net nominal yield of our 50/50 port = 1.3%.

USD CPI YTD = 5.3%.

Our port has to carry a negative 4% real yield.

I have a bad feeling about what seems to me complete global finance insanity.

             There’s always an answer to every investing dilemma. Most want the reward without the risk though and indecision stops the process. The result is you’re boxed in like you are needing to take on more risk now or left treading water unprepared for all future unknowns.

              Cheer up that might work 70% of the time unless events drag on and on in your average 15-20 year retirement. Preparing for the worst ahead of time and hoping for the best has some merit.

[chang]

Sept 27, 2021 11:15:36 GMT galeno said:

I have a bad feeling about what seems to me complete global finance insanity.

I hear you, but the price of gold doesn't.

[Chahta]

Sept 27, 2021 11:15:36 GMT galeno said:

The net nominal yield of our 50/50 port = 1.3%.

USD CPI YTD = 5.3%.

Our port has to carry a negative 4% real yield.

I have a bad feeling about what seems to me complete global finance insanity.

Surely you are living from TR?

[Mustang]

Someone would have to have a very large portfolio (or be willing to invest in pretty risky securities) to live off of dividend and interest only. I tend to look at total returns not yield. Actually I don't look at yields at all.

I read an article a few days ago that talked about the problems with income investing. I just happen to stumble across it but I thought this and the next four articles were pretty good.. goodlifewealth.com/creating-retirement-income/

"Problems with Income Investing'

1. "Value Trap. Some stocks have high yields because they have no growth. Then if they cut their dividends, shares plummet. Buy the highest dividend payouts and your overall return is often less than the yield and the share price goes no where. (Ask me about the AT&T shares I’ve held since 2009 and are down 14%.)'

2. "Default risk. Many high yield investments are from highly levered companies with substantial risk of bankruptcy. Having 5% upside and 100% downside on a high yield bond or preferred stock is a lousy scenario. When you do have the occasional loss, it will be greater than many years of your income.'

3. "Poor diversification. High yield investments are not equally present in all sectors of the economy. Often, an income portfolio ends up looking like a bunch of the worst banks, energy companies, and odd-ball entities. These are often very low quality investments.'

[win1177]

Oct 6, 2021 12:41:54 GMT Mustang said:

Someone would have to have a very large portfolio (or be willing to invest in pretty risky securities) to live off of dividend and interest only. I tend to look at total returns not yield. Actually I don't look at yields at all.

I read an article a few days ago that talked about the problems with income investing. I just happen to stumble across it but I thought this and the next four articles were pretty good.. goodlifewealth.com/creating-retirement-income/

"Problems with Income Investing'

1. "Value Trap. Some stocks have high yields because they have no growth. Then if they cut their dividends, shares plummet. Buy the highest dividend payouts and your overall return is often less than the yield and the share price goes no where. (Ask me about the AT&T shares I’ve held since 2009 and are down 14%.)'

2. "Default risk. Many high yield investments are from highly levered companies with substantial risk of bankruptcy. Having 5% upside and 100% downside on a high yield bond or preferred stock is a lousy scenario. When you do have the occasional loss, it will be greater than many years of your income.'

3. "Poor diversification. High yield investments are not equally present in all sectors of the economy. Often, an income portfolio ends up looking like a bunch of the worst banks, energy companies, and odd-ball entities. These are often very low quality investments.'

Mustang,
So true! Probably 50% of my ultimately “bad investments” have been high yield stocks. They look great, then something happens, yield is cut, share price plummets, and down they go. To me, sweet spot is often 2-3.5% with long history of dividend raises.

Win

[galeno]

We're TR investors. Income investing is NOT for us.

[steadyeddy]

I have been adding long bonds to my portfolio these days - both BLV and TLT; and reducing equity exposure.

My thesis being:
- Even if inflation flares up, the Fed would not allow rates across the yield curve go too high since that has direct impact on what USA has to pay on renewing bonds. Perhaps they will be buying bonds at various points of the yield curve to combat market forces.
- If stocks tank, (which they appear eager to do), long bonds would be a better ballast than IT bonds.

I may be totally out of my freaking mind.. but thought I share. Points/counterpoints are welcome - just be gentle!