There are 1.9 trillion bonds out there and only a tiny fraction are bank qualified. MOST of that represents individual investors. Insurance companies are about 20% the last I looked so it's individuals whether through intermediaries such as mutual funds or direct.
But these households have nearly $200 billion annually in income.
Once again you're confusing income with wealth.
The folks who aren't suited for equities usually never become rich. The ability to accept volatility and change is an inherent attribute in those who succeed greatly.
I'm talking about those who have already made their fortunes. What do they have to gain from risk if they are finacially well off and have accomplished what they needed to accomplish? Any reasonable financial plan will remove as much risk as possible from a portfolio.
Frankly, groanup, that's a naive attitude about financial assets.
Call it naive, call it dull. I sure does preserve assets, create peace of mind, allow for a good night's sleep and allow for an optimal retirement. I once called a client bank of mine and showed the portfolio manager a 10 million dollar CMO that had just hit a 10% yield on our offered side. He took the offer in to the bank president's office and conferred. The president said: "Well that sure is a cheap bond, but, do we NEED it? Are we in such a position that we need to seek that sort of risk? My client responded "no". Then go buy a 7% treasury. LOL.
Your two questions reveal a misunderstanding on your part, that the stock market is especially "risky" as an investment vehicle.
LOL. Misunderstanding? 1973-1974, stock market cut in half. Millions of retirees have to return to work or defer retirement altogether. 1987 stock market loses 20% in one day. 2000-2002 stock market cut in half, millions of retirees have to return to work or defer retirement. Nah, there's no risk there. Hell, just hold on for the ride, buy and hold, you'll get your money back. LOL. Buy low sell high. That's the ticket, that's what the smart money does right?
The ONLY people that buy low and sell high are wrong MOST of the time and cut their losses short. Once in a while you hear stories about the little old man that put his life savings in New York GO's when the city was about to go under and bought them at the bottom. But successful trades are WRONG most of the time. They just let the profits run and cut their losses.
Volatility is the friend of the real investor.
Only if that investor is a hedge fund or a speculator. It's a dreaded thing for investors and a necessary thing for traders.
A portfolio comprising all tax-free bonds is very risky, unless you're 80 years old or older, and in bad health
LOL. Inflation risk is the LEAST risky factor in a muni bond portfolio. Back in the days of Paul Volcker I knew of a bank that kept buying long term munis as interest rates went up. Before long the losses in those munis were greater than the bank's capital. Fortunately, in those days, banks didn't have to mark to market. LOL.
Usually, this kind of attitude is more common among W-2 workers without requisite knowledge, skill, and experience in investing, or without the experience of successfully living from a business that may or may not yield the same amount of income every payday.
And after 27 years in the securities business I can say for certain that your attitude, which seems to be that all the axioms (lies) you have been told by Wall Street all these years are gospel, is not conducive to getting the best deal from the financial advice crowd. Why would anyone believe any investment guru? If the investment guru knew what was going up and what was going down he would just manage his own money from his yacht.
The real risk for someone not on death's doorstep is to lose one's fortune to the ravages of inflation.
LOL. Do you have any idea what inflation does to the stock market?
Even cash is an investment.
Well done!
Dear groanup,
"'But these households have nearly $200 billion annually in income.'
"Once again you're confusing income with wealth."
No, I'm not. This approximates the total annual INCOME of the top 1% of households. It's a rough number, I know, and it varies more than when you're looking at folks closer to the median, but it's good enough for my current purposes.
The WEALTH of the top 1%, I imagine, is in some trillions of dollars. Remember, this is the top 1% of households, which is around 1.3 million households. This is a class that INCLUDES, obviously, the very rich, but just as obviously includes a lot of folks who some might call merely mass affluent. Heck, old Bill Gates all by himself probably has over $60 billion in wealth. Add in Warren Buffett, some Waltons, and a few others, and we'd get to $200 billion in wealth in no time.
"LOL. Misunderstanding? 1973-1974, stock market cut in half. Millions of retirees have to return to work or defer retirement altogether. 1987 stock market loses 20% in one day. 2000-2002 stock market cut in half, millions of retirees have to return to work or defer retirement. Nah, there's no risk there. Hell, just hold on for the ride, buy and hold, you'll get your money back. LOL. Buy low sell high. That's the ticket, that's what the smart money does right?"
As we're talking about the wealthy, even the very wealthy, now it is you that are confusing wealth with income.
"Only if that investor is a hedge fund or a speculator. It's a dreaded thing for investors and a necessary thing for traders."
For folks who are still in the midst of investing years, and who are disciplined investors, volatility is their friend.
For folks who will actively manage their investments, even once retired, volatility is also a useful tool.
"LOL. Inflation risk is the LEAST risky factor in a muni bond portfolio."
Well, in a period of low to modest inflation, unless one expects to reinvest most or all of one's interest, one will see one's principal eroded over time by inflation. For the long haul, inflation is a serious risk for any type of fixed income asset.
"Back in the days of Paul Volcker I knew of a bank that kept buying long term munis as interest rates went up. Before long the losses in those munis were greater than the bank's capital. Fortunately, in those days, banks didn't have to mark to market. LOL."
Ironic in that you demonstrate the point for me. Thank you.
In this case, the bank's accumulation of bonds as interest rates went up meant that as time went on, each set of bonds purchased lost value. As you point out, if the bank had had to mark their value to market, the bank would have been insolvent. That makes my point nicely, if a little overdone.
For individual investors, of course, they can hold the bonds to maturity, and still live on the interest. The problem is that whether inflation is high or low, when they receive back their principal, it will be worth less than when they invested. With relatively low inflation, the effect is low. With higher inflation, the effect can be greater.
Of course, if inflation is higher, interest rates go up, and the investor can set aside some of the interest to counter the effect of inflation. And, sometimes, rates may exceed the rate of inflation by enough that the investor can actually stay even with inflation and derive a decent current income, as well.
However, more often, rates don't provide that margin.
"And after 27 years in the securities business I can say for certain that your attitude, which seems to be that all the axioms (lies) you have been told by Wall Street all these years are gospel, is not conducive to getting the best deal from the financial advice crowd. Why would anyone believe any investment guru? If the investment guru knew what was going up and what was going down he would just manage his own money from his yacht."
Well, that's a pretty cynical attitude. Sorry to see that you've become as bitter as this suggests. That gives me further insight into your support for this half-baked NRST scheme.
As for me, these "lies" have served me well for 20 years, including through the collapse in 1987, and the recent bear market.
Anyway, I have a question. Then, is it your advice for a 60 year old man with, say, $25 million to invest (he just sold his rather successful business) to buy $25 million of tax-free bonds exempt from the AMT?
Thanks,
sitetest