More Straight Talk on Investing

Postscript

Where Did My Income Go?

Throughout this book, I've sought to focus on long-term, enduring principles, backed by anecdotes of actual investor experience and meaningful data. For instance, in Chapter 5, we tell the anecdote of changing our definition of long term from 10 years to 15 years, leading investors to think that we were figuratively moving the goal posts on them. My point then, as it is now, was to encourage investors to ignore short-term events and think, frankly, in terms of decades. So, in a very real sense, this short postscript about what could be seen as merely a “current topic” feels a bit odd, but it is extremely important nonetheless.

What do I mean by current topic? If we look at the role of fixed income and money market investments in a portfolio, we see how important they have been to investors for many reasons. The first important reason is the role as diversifiers, helping to reduce the volatility of investors' portfolios. The second important reason is current income, providing regular payments to their owners. In my view, the first purpose remains firmly in place in this third decade of the twenty-first century. But, frankly, the second traditional role is challenged, at best. And, it looks as though that situation will remain for the foreseeable future, given the state of the economy and current interest rate policies. As a result, I feel compelled to address it, with the hope that it's a cyclical, not secular, phenomenon. I'll provide a bit ...