Thursday, August 19, 2021

Ignore Gilligan at your own peril

A funny thing happened to my 401-k plan in the past year.

I had a portion of my assets in "Inflation indexed" bonds. My thinking was that I could take a lower return today if they did index upward with inflation.

My assumption was that they sold they "won" the bet if the rate of inflation went up and that provided the bump.

The Trust company that holds my assets quietly eliminated the Inflation Indexed option. Truth be told, the fund is only as sound as the counterparties holding the derivatives. If inflation really lit off, the counterparties would vaporize and I would be gored.

The Trust company undoubtedly sent me literature, which I did not pay attention to.

They folded the assets I had in the Inflation Indexed fund and by default invested them in "Real Assets" as the closest fund, in principle, to Inflation Indexed bonds.

Real Assets, as you might guess from the title, invests heavily in real estate.

Hold that thought.

Tony the barber

When I was a wee sprout and first investing, I used to go to a barber beneath Frandor Shopping center (Lansing's first mall). He would cut my hair and talk non-stop.

Tony was my Gilligan. From an information systems standpoint, he was at the end of the pipe-line. He was the tip of the whip moving up as the handle was starting its downward arc.

I am not saying he was dumb. His problem was that his cliental were among the last to be chivvied into the slaughter house before the doors were slammed shut. They didn't have very much money and it was barely worth the effort for market-makers to chase every last dust-bunny. But indeed, it was marginally worth their effort, so when the toffs and punters and Tony's clients started talking about the joys of the market...grab your hat and run for the door.

Yesterday another person who fits the last-crumbs-on-the-floor took the big plunge and bought a duplex in a downtown area. She enthusiastically explained how the rent from the upstairs will pay for the downstairs where she intends to live.

Perhaps she is a genius. I don't have the stomach for rental property, especially since the United States Government protects tenants who decide they have better uses for their rent money than to pay the landlord.

Ignore Gilligan at your own peril.

I sold the Real Assets fund and plowed it into short-term bonds.

And no, I did not rain on the last person's parade. She might get lucky and do fabulously.


  1. Could you define "a portion"? I just looked at my 401k and I have 5% in a real estate fund. I understand what you're saying but I'm comfortable with a small amount in a real estate fund whereas a larger amount might have me selling, too. Just wondering.

    Opie Odd

    1. It was at 20% when I noticed the change. I immediately liquidated half of that (10% of total). Today I liquidated the remaining 10%.

      I have to admit the fund was racking up gains much faster than what it replaced.

      In the over-all scheme of things, 5% isn't going to make-or-break you.

  2. Palantir just bought $50 million in gold. Just sayin'.

  3. Yup, I'm pretty sure real estate is close to it's top. Don't forget that real estate is the ultimate local asset, so values, and change in values, vary hugely depending on location.
    I would NOT own pricey real estate in a city at this point... On the other hand, in many places rural acreage is selling like crazy, just not the place I have listed in Ohio.

  4. Jonathan H - What county is your real estate in Ohio?


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