In re: "While those 30 yr bonds they bought yielded 9.5% when they
bought them, remember that they are not yielding 9.5% on their cur-
rent value. So, either they should be viewed as yielding 9.5% on
the 560,000 original value, or (more accurately) 5.6% (or whatever)
on their current value ($770k?)."
Indeed, you are right. Ken. If memory serves, the caller declared
that her husband had received $560,000 upon his retirement some
years ago and had elected to purchase 30 year US Treasuries at a
9 1/2% coupon, maturing A.D. 2018. Further, she stated that the
income derived from said source represented one-half of the couple's
total retirement income. Observing that capital appreciation had
propelled the value of the bonds to $770,000 (to recall it), she
queried Pollan as to whether it might behoove them to sell their
nest egg. Pollan replied with his favorite question, to wit, "do
you wish to die broke?" Hearing that she wished to provide for
her grandchildren, Pollan suspended his vaunted "die broke" rule.
At which point, without reference to capital gains taxes, histor-
ically high market valuations, the risk-free nature of their high
coupon investment immune from punishing California State taxes,
or any other important factor, Pollan blithely suggested that she
sell the bonds in order to, as he vaguely put it, "broaden her
investments." As an afterthought, he made passing reference
to a financial planner.
Suffice it to say, the cavalier attitude and lack of analytical
discernment with which Pollan dealt with this retired couples'
life savings and income base smacked of utter irresponsibility,
if not negligence. Neither Brinker nor Flanagan nor even the
"goodess of money" nor any competent financial expert would,
in my view, have dealt with this question in so reckless and
uninformed a fashion.
May our summer and all summers yet to come be allergy and
Pollan free.
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