By August 7, 2012 October 7th, 2014 Blog

Mr. Harish Rao: One very interesting link for your reference;

I would like to hear your view on this?

Mr. Gerard Colaco: The article reminds me of Lao Tzu, the sixth century Chinese philosopher who said: “Those who have knowledge, don’t predict. Those who predict don’t have knowledge.” Honestly, I do not know what returns equity, cash or bonds will give in the next decade, whether in the US, India or elsewhere.

I think it was Frank Netti who said that poor investors seek the highest returns, whereas great investors seek the highest probability of good returns. I therefore don’t mind pleading guilty to ‘Bogleization’. But I am certainly not going to leave my clients to the tender mercies of hedge funds and alternative investments.

I have seen too many of these implode with consequences that are devastating. Whereas, a sensible asset allocation programme, while it may not lead to riches at times, has not been known to leave in financial ruin, those who have made an honest attempt to follow it.

Even if I believed that equity, bonds and cash or any rebalanced mix thereof would not really help an investor in the US, my ‘alternative’ would be to encourage such investors to place the funds in their retirement accounts in Treasury Inflation Protection Securities (TIPS), where the interest, however meagre, would be tax-free and the capital appreciation (which would equal inflation) would also be tax-free, at least until withdrawal.

In other words the investor would be assured of complete protection against inflation and a slight growth over it. I always encourage investors to look for neither the maximum return nor the minimum return, but the OPTIMUM return. So, for the US, TIPS would have a role to play, and Jason Zweig and Burton Malkiel confirm this.

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