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November 8, 2010

Links round-up

Rather than writing a post today on a single topic, I want to alert you to several interesting items from recent days.

First, at the Wall Street Journal, Brett Arends observes that many dividend-paying stocks look considerably better than bonds being issued by the same companies, yet the public keeps piling into bonds.

Arends also has a somewhat scary analysis of the "Retirement Disaster Ahead." Bottom line: many people are still counting on unrealistic future investment return numbers. As a result, they aren't saving nearly enough for the type of retirement they expect.

A recent auction of TIPS (Treasury inflation-protected securities) sold notes with a negative yield (-0.55%)! Seems strange, but Mark Hulbert explains why that makes sense, given that these TIPS can be thought of as an insurance policy protecting you against the risks of both severe deflation and hyperinflation.

On that same topic, Eric Jacobson of Morningstar adds some good context to this TIPS news, explaining that if annualized inflation over the next five years is higher than 1.52%, the buyers of these negative-yielding bonds will wind up winners.

While the big twin news events of last week were Election 2010 and the Fed's QE 2 announcement, there was also a surprisingly good (or at least, less bad) jobs report. As the Vanguard video below makes clear (an interview with Vanguard's chief economist Joe Davis), there is a reasonable "case for cautious optimism" on the economy at this point.

Finally, new rules about reporting the cost basis of investments are going to start kicking in for brokerages next year. This will mean brokerage customers have some decisions to make soon. So be watching your mail for information from your broker. This information could have important implications, particularly if you have money in a taxable investment account.