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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.

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Ken TuminKen Tumin5,468 posts since
Nov 29, 2009
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