Hacker News Reader

Comment by vanschelven | Hacker News Reader

IMHO the colors are somewhat misleading. Since the data have already been corrected for taxes and inflation positive returns are net-positive and should be green. In the original picture even 0-3% returns were red.

This is what it looks after shifting all the colors one step towards green:

http://imgur.com/KqU1B

View on HN

The reason they're coloured like that is that you can get to the pale red (0%-3%) by putting you money is much safer vehicles like term deposits or bonds. If you're getting less than 3% out, stocks aren't worth it.

Possibly, though I have serious doubts that bonds make 3% when corrected for both inflation and taxes.

In any case I would love to see (or make myself) the comparison with other vehicles.

bond yields rise with inflation

http://www.hussmanfunds.com/rsi/yieldsinflation.htm

As far as I understand it, your statement is correct at face value, but incorrect in the context of this discussion, since we're discussing the relative yields of bonds and other investment vehicles over a long time period.

Say use all my money to buy a long term bond today. If inflation would rise tomorrow, you correctly point out that bond yields of tomorrow's bonds will rise. However, mine is fixed. This means I'm hit, firstly, by the inflation, and secondly, by the fact that the price of the bond will fall. (The price will fall because competing bonds will have better yields tomorrow).

Correct me if I'm wrong.

my understanding is that you can buy government bonds indexed to certain measures of inflation. TIPS, I believe they are called. Obviously, they yield less than a regular bond, if inflation doesn't go up, but they do keep you in positive territory, if inflation does go up.

Indeed. However, TIPS also provide a nice counterpoint against mjs' claim that "If you're getting less than 3% out, stocks aren't worth it." In 2010 TIPS did not necessarily keep you in positive territory.

TIPS currently have negative real yields - you pay for the privilege of hedging against inflation. When inflation is expected, TIPS do not necessarily guarantee positive real returns.

http://www.bloomberg.com/news/2010-10-25/treasury-draws-nega...

This chart is not that accurate for 401k style investing where taxes are irrelevant. The sort term bias is in years with high inflation traditional investments pay a heavy tax burden. AKA if inflation is 7% and your tax rate is 15% then your investments need to make 8.24% or they are not keeping up with inflation. Over longer time frames while less important it still impacts dividends.

PS: Also, historically taxes on investment income have been taxed far higher than 15% depending on how accurate the model this could have significantly altered their assessment.

> This chart is not that accurate for 401k style investing where taxes are irrelevant

He has various other versions including "Tax-Exempt Real" on his website:

http://www.crestmontresearch.com/content/Matrix%20Options.ht...

But the look is quite different from the Times version, interesting to see how the Times made it conform to their look.

I like the viz. Although one more level is needed to convey a realistic retirement investment spanning 30 years, and a subsequent 20 year withdraw period. No single square matters that much, instead you have some funky isoline which crosses many squares.

Wow, that version is FAR more informative than the nytimes version!

Reply on news.ycombinator.com