Replies to post #33615 on A.I.M. Users Bulletin Board (AIMUSERS)

[lostcowboy]

However, I did look at a dividend adjusted total return graph of the S&P 500, and the 2000s were the worst decade since the great depression, so they may be spot on.

It is my suggestion to not use dividend adjusted data. Its not that dividends are not important, they are! But when they adjust the data for the dividends/splits, you end up with numbers that never happened in real life. Better to use raw data and make your own adjustments.

[ls7550]

A 5 year treasury ladder, if each rung is held to maturity, has exceptionally low risk.

The volatility is the average of all five rungs i.e. 2.5 year duration volatility.

The payout/reward, once established, is the average of all the 5 year duration yields.

So a 5 year treasury ladder has somewhat cash like risk, but 5 year duration yield.

Such mid term duration treasuries historically also have had rewards comparable to that of long duration treasuries.

Ballpark figures are that, since the mid 1920's, T-Bills have yielded an average 0.7% real gain whilst mid and longer term treasuries (that a 5 year ladder might achieve) have yielded an average 2.2% real gain.

During times of deflation cash might earn very little, but not lose any value and as such gain in real terms. In times of inflation lenders (buyers of treasuries) expect a higher reward to reflect the real declines in the currency value, so rates rise and the ladder progressively might buy new replacement 5 year durations with higher yields, coupled with a premium for time value.

So 'cash' in the form of a 5 year ladder can yield a real (after inflation) gain of 2.2% type amounts, is safe and resilient to both inflation and deflation (albeit in a somewhat 2 year lagging type manner).

When combined with other investments will likely generate a 0.5% of total fund value benefit from rebalancing in a add-low/reduce-high like manner such as AIM. With 50% of funds in speculative (perhaps stocks) earning 5% real gains and 50% in 'cash' earning 2.2% real gains, combined with a 0.5% average yearly rebalance benefit might yield a combined 4% real gain. 1% less than 100% stock, but with half the risk.

Cash is an asset class unto itself and an asset class that should be an integral part of any diversified portfolio.