Current Market Conditions
Yes, the market seems to be continuing its bullish trend (as of the close of March 5, 2014), and as long as it does, we want to be in equities in some degree. But we must be prepared for the inevitable: a bear market is coming. Interest rates are going to increase as the Federal Reserve tries to stop an overheated market, and everyone will flood into bonds when that happens.
But will bonds come to the rescue this time like they have in the past? For over 30 years, whenever we have had a bear market or even a correction, money flows into long-term treasuries. In a bear market, the Federal Reserve usually cuts rates to encourage the economy, and investors then make a lot of money in long-term treasuries.
But in today's environment, long-term treasury rates are very low, and there is no where to
By Roger Nusbaum, AdvisorShares ETF Strategist
A long-time reader sent a link to an article from Forbes titled Leverage Your Way To A Richer Retirement. The article considered research done by Jason Scott at Financial Engines which looked at completely revamping the 4% rule (the 4% rule pertains to the optimal withdrawal rate for a retiree take from their portfolio without exhausting their funds).
Scott's portfolio is called the floor leverage rule and the basic idea put forward is to put the vast majority of the portfolio into bonds or perhaps TIPS to guarantee some minimum level of income from the portfolio. The suggested allocation was 85%.
Scott views the fixed income allocation in an interesting way. Based on prevailing yields how much needs to be invested to generate $1000 in annual income. Per the numbers cited $25,000 would generate $1000 per year from TIPS and that