Morningstar Magazine - February/March 2014 - (Page 20)
Trends
Chart of the Issue
Intermediate-Term Government Bonds, January 1926-August 2013
Inflation, Not Rising Rates,
Biggest Long-Term Threat
to Bonds
$100
Nominal performance
5.3% Annualized Return
10
Inflation-adjusted
performance
2.3% Annualized Return
1
Interest rates inched up recently as the Federal
Reserve announced it would begin tapering
its asset purchases. Given that environment, it's
important to remember the inverse relationship
between bond prices and yields: If interest
rates rise, bond prices fall. But the chart to the
left, which looks at the 20-year Treasury,
is also a reminder that inflation can take a bite
out of returns, too, as evidenced by negative
performance on an inflation-adjusted basis in
the 1970s.
1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Quick Stat
Because you have more transparency, you have
more comparability. Things have been made a lot
simpler for consumers. That may be a good
thing for the consumer, but that's not necessarily the
best thing for the insurance companies.
$18,596
Chicago's aggregate per-capita unfunded
pension obligation, the worst among 25 large
cities (Strategies, Page 54)
Morningstar analyst Vishnu Lekraj on the impact of the Affordable Care Act (Sector Rap, Page 70)
Allocating for Retirement
Investors often struggle to find the right mix of investments for their portfolios. Below is the asset allocations for Morningstar's Moderate LifeTime
Allocation target-date index. The quick takeaway: Even 10 years from retirement age, equities should still dominate retirement portfolios.
Income
Target Retirement Year
2000
Stocks (%)
Bonds (%)
Inflation Hedge (%)
Cash (%)
31.86
36.72
25.33
6.09
Inflation hedge consists of commodities and TIPS. Data as of June 2013.
20 Morningstar February/March 2014
2005
2010
2015
2020
2025
2030
2035
2040
2045
32.59
37.62
24.06
5.72
35.47
39.00
20.77
4.76
39.74
39.04
17.44
3.78
45.36
37.56
14.24
2.84
53.10
33.77
11.18
1.95
63.38
27.06
8.42
1.14
74.14
18.92
6.41
0.54
82.32
12.16
5.31
0.20
86.52
8.56
4.87
0.05
87.68
7.53
4.78
0.00
2050
2055
88.03 88.05
7.11 7.00
4.87 4.95
0.00 0.00
Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2014
Morningstar Magazine - February/March 2014
Contents
Contributors
Letter From the Editor
Preparing for the Next 50 Years
Morningstar Managers of the Year
Fixing the Trust Deficit
Rethinking the Path to Retirement
Trends
Same Old, Same Old
Global Briefs
The Economic Implications of an Older World
Banking on Performance
Is the Affordable Care Act Healing Health Care’s Woes?70
Baxter Has a Positive Prognosis
Leading Fidelity’s Charge for RIAs
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Moving the Goal Post
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