Reader "Worried about Inflation, Deflation, Stocks, Bonds, Gold, Everything"

A recently retired reader friend is worried about, inflation, deflation, bonds, stocks, banks, and gold.

Worried About Everything

My friend is better off than most. He has a small retirement nest egg but he is fearful of a 2007-2009 kind of drawdown. That's a reasonable fear to say the least.

He's 60-40 or so in stocks and bonds, mostly funds, with a bit of gold. All of his savings are in an IRA. His number one concern is loss of principle.

Anyone heading into retirement with no concerns is 1) somehow oblivious to the risks or 2) has so much money it does not matter what happens.

Potential Problems

  • The dollar could collapse.
  • Defaults can wipe out junk bonds.
  • Funds carry selloff and liquidation risks.
  • Gold is gold but it can fall in price.
  • Inflation can kill long-term bonds
  • Deflation may kill equities.
  • Stocks and bonds may fall for years, even if there is no recession, simply because of valuation and sentiment changes.

Losing Sleep

Someone worried about nearly everything cannot possibly be getting much sleep with all these recent stock market gyrations.

To reduce risk as much as possible, one needs to largely get out of the market, especially mutual funds.

Treasury Ladder

A TreasuryDirect bond ladder is one of the safest places to be.

Contrary to popular hype, the US is not going to default on treasuries.

TreasuryDirect does not support IRA accounts. However, banks do offer CDs for IRA accounts.

Someone with a $1,000,000 portfolio can easily construct a TreasuryDirect or CD Ladder to preserve principle.

There are not as many banks offering IRA CDs but there are enough of them. From BankRate.Com, I came up with these rates.

CD Rates

Those who expect inflation will mock such rates. So will those who expect a dollar collapse.

Those who think deflation, and those who think an equity or junk bond collapse is coming would appreciate those rates.

Yields are the highest in about a decade, and they can be locked in.

Moderate CD Ladder

Bankrate came up with this "Moderate CD Ladder" for an $800,000 investment.

The problem with that ladder is the top rates tend to be clustered at the same small set of banks, especially for IRAs.

Safety Rule

Do not put more than $250,000 at any one bank.

In the above ladder, every year you roll over the expiring 12-month CD at the bank then offering the highest 5-year rate.

If that puts you over the $250,000 limit, then find another bank.


My initial assumption was a $1,000,000 portfolio. As long as fear of gold is not extreme, then $800,000 in a bond ladder with another $100,000 in gold and another $100,000 in gold miners seems reasonable.

The more adverse one is to risk, the more one should put on gold and less on miners.

One who is more fearful of gold can go 90-10. At a 90-10 ratio, even if gold were to fall in half over five years, the portfolio would still have a gain.

Other Options

Rather than a treasury or CD ladder, one can opt for extremely high quality individual bonds held to term. Such bonds would include Apple, Google, and Microsoft. Those companies are not going bankrupt.

The important point is to build a bond ladder of hand-picked individual bonds as opposed to bond funds.


GMO Projects real (inflation-adjusted) negative returns in US stocks and bonds, every year, for the next seven years.

GMO offers this disclaimer.

*The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward‐looking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years.

Measuring the Bubble

If one assumes 2.2% inflation per year, then the nominal decline is on the order of -3.4% per year for seven years.

Compared to Hussman, GMO is outright optimistic. In Measuring the Bubble, Hussman forecast stocks will decline by two-thirds over twelve years.

I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say "... and this is where they completely lost their minds." As I’ve regularly noted in recent months, our immediate outlook is essentially flat neutral for practical purposes, though we’re partial to a layer of tail-risk hedges.

I side with Hussman, but even GMO's optimistic forecast would crucify pension funds.

If either GMO or Hussman is remotely on target, those in a treasury, CD, or extremely high-quality corporate bond ladder of individual issues will be the ones smiling.

Trump Anxiety vs Investment Anxiety

Another sleepless friend has "Trump Anxiety". She is worried about everything Trump says and does.

Her doctor tells her "Trump Anxiety" is running rampant.

I cannot help with "Trump Anxiety" but an extremely conservative portfolio structured as above will minimize investment anxiety.

Personal Positions

What are we doing? I am mostly in gold, miners, and cash. My wife is mostly in a portfolio of extremely conservative individually selected bonds.

Mike "Mish" Shedlock

Comments (29)
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“You don’t have to answer that question!”

“I’ll answer the question. You want answers?”

“I want the LTV ratios of subprime mortgages!”

“You can’t handle bthe LTV ratios! Son, we live in a world where banks balance sheets need to be guarded by men with the ability to create capital out of thin air! Who’s going to do it, you? You, Lt. Weinberg?

I have a greater responsibility than you can possibly fathom. You weep for 4% money market yields and curse the Federal Reserve! You have that luxury. You have the luxury of not knowing what NY Fed President William Dudley knows.

Lehman’s collapse, while tragic, saved a few pensions for a while. My existence, while grotesque and incomprehensible to you, probably saves banks.

You don’t want the truth because deep down in places you don’t talk about at parties, you WANT me to quantitatively ease, NEED ME TO QUANTITATIVELY EASE!!

We use words like non-GAAP, mark-to-model and loyalty. We use them to defend a lifetime of systemic theft while you use them as a punchline on your blog site!

I have neither the time nor the inclination to explain myself to a man who borrows under the blanket of
fraud that I provide and then questions the manner in which I use FASB 157 in order to provide it! I would rather you just said ‘thank-you’ and went on your way.

Otherwise, I suggest you pick up a pen and Robo-sign a few subprime mortgages. Either way, I don’t give a damn what you think these AAA rated CDOs should be downgraded to!”

“Did you order Operation Twist... Colonel Jessup, did you order Operation Twist?”

“You’re g-d damn right I did!!”

LMAO! 😇😂😊


My family has lived on laddered TIPs that mature every January for over 11 years, and I plan to do so from here on out. Our portfolio has made around 2.5% + annual inflation, and they have been predictable and reliable, and holding individual bonds to maturity means there are no interest rate fluctuation issues; it also lets me plan out an inflation-adjusted annual income for 30 years or more. We own our non-qualified funds in Treasury Direct, and qualified funds in Fidelity, where you can buy individual TIPs in your IRA or 401-K. I also own a big stockpile of simple I-Bonds as well (many paying 3-3.5% above inflation), which also have some advantages over TIPS as well, and they dovetail nicely to manage taxes.

No. 26-29

Good article. If one gets 1.2M or 1.5M cash from the sale of a house, how does one go about directing it to 6 or 7 different banks? Ask the buyer to give multiple checks of 200-250K each?


What are your thoughts on money market funds - how do they compare to treasury securities for risk vs. reward in the current climate? Thanks!