Alternative viewpoint on Deflation/Inflation

[Scanner]

Forget Your Inflation Fears Think About Investing for a Deflationary Environment: Tech Ticker, Yahoo! Finance

I am not advocating one way or the other. . .I do agree with his rec. of utility stocks always being a good "boring" investment and one I have looked into a lot actually.

I do think this is "philosophical" topic that continues to be needed to be knocked around - deflation vs. inflationary risk.

I found an interesting recommendation on a different thread to read - "How to Retire on Less Than You Think." Pre-financial crisis, I know a lot of people here wanted 4.2 million dollars, etc.. . .based on COL and inflationary assumptions. I wonder how much that has changed.

[EconoMutt]

Great Article. Thank you for posting

[Broken Arrow]

Isn't this article contrary to your own beliefs?

To be fair, it's worth noting that all the liquidity (M2 supply) that the Fed attempted to pump in only slightly thawed the credit market, but hasn't quite opened the flood gates so to speak. I believe that, not necessarily technological advances, is the cause of our current short-term deflation.

I believe what he's noting is more along the lines of an actual, fundamental deflation in our economy. But for that to be the case, we'd have to have a "normal" economy where, at the very least, the money supply is not frozen.

It is informative, although in the end, perhaps it's best that we simply diversify properly.

[disneysteve]

Originally Posted by Scanner

Pre-financial crisis, I know a lot of people here wanted 4.2 million dollars, etc.. . .based on COL and inflationary assumptions. I wonder how much that has changed.

I would think that the financial crisis and deflation fears would make people want to save even more for retirement. Look at the seniors this year. SS payments are not going up since there is no official inflation. Of course, Medicare premiums are still going up so they will end up with less income next year than this year. That's rather scary for someone at that stage in life. If they don't have personal savings to fall back on, they'll be in trouble. Add in the pathetic interest rates on savings and if you don't have a lot saved, you're out of luck.

The market correction also emphasizes the need to save as much as you possibly can. Sure, I can live in retirement with less than $3 million, but what happens if I only save $1.5 million and then there is another 40% drop? I'd be screwed.

So no, my desire to build a multi-million dollar nest egg hasn't changed at all.

[Scanner]

The market correction also emphasizes the need to save as much as you possibly can. Sure, I can live in retirement with less than $3 million, but what happens if I only save $1.5 million and then there is another 40% drop? I'd be screwed

Gee DisneySteve,

You really think that? You really think you can't live on $900,000 in savings in retirement? (plus SSI?)

[Scanner]

Isn't this article contrary to your own beliefs?

I don't know if it's contrary to my beleifs but I would say it's contrary to my speculations.

I think with an expanding global population, esp. with an expanding middle class in China, that commodity prices have to go up as there is natural competition for wheat, oil, coffee, whatever.

You all know my precious metal take.

[Scanner]

BTW, it's funny how I think is so contrarian to a lot of people and "non-centrist". I totally dig what you are saying, DS. . .people have gotten "paranoid" and you are basically saying you have bought into it a little bit, clamped down and are saving as much as can and have that multi-million dollar goal more than ever. Everybody is saving now.

I tend to operate from the "I don't have to run real fast. . .just faster than you to escape the bear." So, my retirement goals have dropped a bit. I originally wanted $1,000,000 but I'll take $800,000 at this point (and my health! and a 10 hour/week job!).

In other words, the bear has been charging but I am doing "okay" and as long as I finish "okay." That is, a B- is okay, don't need that A+, lol.

[amarowsky]

This article made me feel good, because Even though I am young and still fairly new to investing, I made the right decision on my own (only according to the article) early august. I sold all my shares of AMD (american micro devices) for DTE (Detroit Edison) which was nice Because I was receiving no dividend for AMD and my stock was floating and not gaining for the past year or so. I conveniently bought DTE and in addition to a nice dividend that I have rolling into more shares, I have also seen a pretty decent gain %-wise.

I remember from the Book "the millionaire nextdoor", I don't recall the Exact line, but the author(s) refer to how the majority of the wealthy people earned something around 50-60% of their wealth from their stocks, not though Trading but from dividends paid from long term holding stocks. Especially in higher utility and blue chip stocks that are well established companies and not really going anywhere (folding) in all likely hood.

Although this theory was rattled pretty hard when you consider the bank Fiasco earlier this year with Bear Sterns and WAMU and ect. folding and all.

[Scanner]

Yes, I also remember reading anotehr article oh, about 3-4 years ago that said utility stocks are almost better than bonds for income investing as you are right - they aren't going anywhere.

Still have market risk a bit though, along with regulation or deregulation affecting them. Still pays to be diversified in them.

[Snodog]

Originally Posted by Broken Arrow

It is informative, although in the end, perhaps it's best that we simply diversify properly.

I agree. I'm not making a big bet on either inflation or deflation. The key is to have assets that will do well in each environment.

Not saying he is wrong but Mr Shilling has been accused of being a perma-bear by some.

[disneysteve]

Originally Posted by Scanner

Gee DisneySteve,

You really think that? You really think you can't live on $900,000 in savings in retirement? (plus SSI?)

Originally Posted by Scanner

I totally dig what you are saying, DS. . .people have gotten "paranoid" and you are basically saying you have bought into it a little bit, clamped down and are saving as much as can and have that multi-million dollar goal more than ever. Everybody is saving now.

I tend to operate from the "I don't have to run real fast. . .just faster than you to escape the bear." So, my retirement goals have dropped a bit. I originally wanted $1,000,000 but I'll take $800,000 at this point (and my health! and a 10 hour/week job!).

In other words, the bear has been charging but I am doing "okay" and as long as I finish "okay." That is, a B- is okay, don't need that A+, lol.

I think if I've planned for a retirement based on a next egg of $1.5 million and suddenly found myself retired with only $900,000, yes, I do think that would be a problem. It would probably largely derail my retirement plans and result in me working longer or going back to work if I had already stopped. I'm not suggesting that I couldn't get by on 900K. I probably could, but it wouldn't be the lifestyle that I envisioned and saved for, especially if we remain in NJ and property taxes continue to climb at the rate they have for the past 15 years. I think that's exactly the situation many retirees now find themselves in. Guys in their 70s going back to work because of the losses they suffered in their retirement accounts and rising expenses. I'd much rather save more now and try and avoid ending up in that situation.

You are willing to scale back your retirement to one where you spend 20% less. That's fine. Personally, I wouldn't want to make that kind of cut so I'm willing to try and do what I can now to avoid it.

My mom is 79. She doesn't have a ton of money but gets by okay. She just had a large CD mature and finds herself rolling it over at less than half the interest rate it was earning. If she was dependent on that interest income, she'd be in trouble now. Fortunately, she has enough saved to absorb that drop in income without altering her lifestyle, which is already pretty basic. Lots of other people her age aren't so lucky. When their 5% CD renews at 2%, they need to make cuts in spending. Saving a little more while they were working could have lessened the impact today.

[Scanner]

Yeah, but Steve. . .you are allowed to chew the principal a little. Sure, I want a little for my heirs but not the entire kit n' kaboodle.

I think it would take a long time to burn through 900K. Okay, maybe if you are cruising the world every year. . .but who's going to do that? You'll need a car every 10 years because you aren't going anywhere?

I think 900K buys you a lot of Early Bird Specials.

[kv968]

Originally Posted by Scanner

Still pays to be diversified in them.

Did you just use the "D" word?!?

[disneysteve]

Originally Posted by Scanner

Yeah, but Steve. . .you are allowed to chew the principal a little.

I think it would take a long time to burn through 900K.

Let's say I retire at 62 as planned. I live to be 87, so 25 years. That means I could spend 36K/year of principal plus earnings to be at zero at age 87. That's not a lot of money now and will be even less money 17 years from now when I'm 62. Right now, property taxes alone are 7K which would leave us only 29K/year (plus earnings) to live on. No thanks. That's not the way I'd want to spend my golden years.

This doesn't count Social Security, but I don't count that in my retirement planning because I have no idea what SS will look like 20+ years from now. And what happens if I don't die at 87? If I live to be 88 or 90 or more, I'd be in big trouble.

[wincrasher]

I think we are in a long period of stagnant wages, prices and low yields on investments. There is a tremendous amount of money sitting on the sidelines with no where to go.

It's a vicisous cycle and will be hard to break even with the massive amounts of money poured into the markets by govt. Higher taxes are coming and will probably absorb a good bit of what little growth we'll have.

Millions are deferring their retirement plans - staying at work longer, which will also keep a lid on incomes for the very young.