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RISK MANAGEMENT How do you measure the risk of your savings not meeting
your retirement needs?
October 29th 2012
www.gnostam.com
Price of Barrel of Oil
Chart of US Treasuries 5 yr
Recent Depreciation of US $ � How much value has $ lost since
2002? � If had kept its “parity” with:
� Chinese Yuan: Gallon of petrol $3.10 vs. > $4.00;
� Euro: Gallon of petrol $2.90 vs. >$4.00;
� Yen: Gallon of petrol $ 2.75 vs. > $4.00;
� Swiss Franc: Gallon of petrol $2.50 vs. $4.00
How much Gold a $ would by in Mg
One 1963 $ now worth 15.7¢
Real Return if invested in T Bills since 1950
Real returns after taxes –ve!
Have TIPS kept up with inflation?
� TIPS are US Treasuries that have their par value indexed to the Consumer Price index, while their coupon or interest remains fixed.
� Implied inflation rate, [yield of 30 year TIPS minus yield on T bond] has been rising steadily. On 29th October 2012 it stood at 2.51%, while 30 year yield was 2.88%, so slight +ve return
� But 10 year TIPS have a NEGATIVE return…. Or -0.76%.
Risk Management Solution � You cannot rely on one asset class to protect
yourself from savings erosion, [inflation and US $ depreciation];
� $ lost 3.56% per annum vs. Swiss Franc from 1/1/2004. Bonds returned approximately 4.95% pre tax. If paid 25% tax and fees, then the return would have been equal to inflation, and took more risk as duration approx 4-5 years, and included non AAA rated bonds;
� Solution diversify with care….. It works, if you have a good idea of our risky environment and can develop …….. A STRATEGY FOR YOURSELF!
Thank you for your attention
Gnostam LLC PO Box 960 Inverness, CA 94937 USA Tel: 206 384 0069 E-mail: [email protected]@gnostam.com