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Experts Debate Conservative Investment Alternatives In Today's Low-Rate Environment

Wednesday, December 14, 2011 - 1:43 PM
The well-known Princeton economics professor and author Burton Malkiel caused some commotion with investment experts in his recent Wall Street Journal op-ed, The Bond Buyer's Dilemma. Malkiel describes the problematic environment that exists for income investors and retirees:
Are we in an era now when many bondholders are likely to experience very unsatisfactory investment results? I think the answer is "yes" for many types of bonds—and that this will remain true for some time to come.
Artificially low interest rates are a subtle form of debt restructuring and represent a kind of invisible taxation.

Malkiel suggestions for investors are what caused the commotion especially since his famous book, A Random Walk Down Wall Street, makes the case for index funds. His suggestions in the WSJ op-ed included holding tax-exempt municipal bonds, foreign bonds from countries with strong balance sheets and blue-chip stocks with high dividends.

Larry Swedroe at CBS MoneyWatch had this to say:
In this case, stick with Malkiel's suggestion about tax-exempt municipal bonds. [...] If you still need more return to reach your financial goals, you'll likely be better served by increasing your allocation to a well-diversified stock portfolio as opposed to following Burton's recommendation to consider non-dollar bonds or high-dividend stocks.

Allan Roth at CBS MoneyWatch provided this warning:
don't think for a minute that dividend stocks and munis have less risk than Treasuries. Markets may not be perfectly efficient, but they don't give free yield, either.

Ken TuminKen Tumin5,473 posts since
Nov 29, 2009
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