Though there are emotional quirks with true saving instruments, the frequency of trauma is low. Saving instruments are for investors who value predictability and are not troubled by jealousy, resentment, or regret when other investments produce spectacular returns and make headlines. Longterm returns on savings instruments are lower than for other investment classes. For those who value peace of mind, the price of lost returns is more than reasonable.
Savings instruments are also good for investors who do not want to spend time on their investments. Buy and ignore is a good philosophy for savers. Someone who needs to be out of the country for five years should leave her money in savings instruments. Blind neglect is often advocated for stocks, but in fact, there are too many five-year periods when stocks lose half their value.
Picking Treasury bonds requires a few hours each year. Higher yields can be found in agency issues and older bonds. Call provisions must be evaluated. The time requirements are minimal.
Investors looking for action should look elsewhere. If you enjoy lots of research, or want to interact with people such as tenants, other investors, or money managers, savings instruments are not for you. While you can create excitement trading bonds, you cannot create profits. High-energy investors should stay clear. Disappointment will follow.
Treasury bonds are also the only insurance against deflation. Savers who worry that current Japanese deflation may be exported to the United States or that there will be a return to deflation of the 1930s will feel safe here. Savers concerned with inflation will be comfortable with TIPs and money market funds.
Michael tinkers with his portfolio obsessively. In prior years, he read investment magazines and newspapers late into the night. Now he has a fast Internet connection and often signs off after midnight. Susan is freaked out by the paper gains and losses that routinely occur every month. The abstract nature of the account statements, reports, newspaper articles, and Web sites makes her nervous. Her mind cannot grasp what they really own nor does she understand why Michael is constantly playing with it. Ever since the decline of 1990, when they were new to the stock market, there has been a sense of impending doom over their financial security.
Interestingly, Michael and Susan would both be happier with a portfolio primarily consisting of single-family homes. Michael’s tinkering could cut costs and improve rents and tenant quality. He has no guilt about being a landlord. He and Susan have a nice house they are proud to own. They are now living in their third home together. Together they were able to buy two cute cottages in attractive neighborhoods, which they sold for much more than the purchase price. Michael is fair with the many employees he supervises.
There is no reason he would be a poor landlord. Michael is also not likely to trade properties. While he is able to justify many small commissions to a discount broker, having never added them all up, the idea of giving 6 percent of his property to a Realtor every time he sells a building does not appeal to him. Susan could drive by and look at their properties any time she needed reassurance. The children could help out cleaning and fixing up between tenants. Though Michael may lose a major topic of conversation at the office, he would sleep better and be more productive at work. He would also be wealthier. If, in each of the last 10 years, he had bought a new single family home with $50,000 down, putting nothing in his 401(k) or anywhere else, he could potentially have equity of $1,000,000 today.