Real Real Returns - Thornburg Investment Management

As I was reading about real return bonds, which have been in a bull market, I came across this study on Real real returns.

This was an assessment dated Dec. 2012. I suspect that a change might come over these numbers going forward, but the probability is that even in the aftermath of a currency crisis somewhere in the world, or a bond market failure or the like, or a major stock market decline (more probable) this assessment will continue to hold true.

What we have seen in the aftermath of the U.S. dollar bull market that concluded in 2002 was the housing bubble and afterwards the commodities bubble. We are now in a follow-up bond market bubble, but I expect that bond prices will lose volatility and interest rates remain low due to central bank buying.

http://scharts.co/15LxNRY

The best real returns on your investment dollars are large cap dividend paying companies with strong yields. U.S. captial gains taxes and dividends are taxed only at a rate of 15%. In Canada, they are taxed at double the rate.

So the focus aught to be on strong yields. That means buying shares when prices are low. Share prices, however for large cap U.S. stocks are in a huge rally. So you wouldn't necessarily be looking there, as long as yields are below inflation adjusted returns.

So you can expect that yields aught to factor in on an inflation-adjusted basis on the book value of your investment. What price you bought your shares for is really meaningful in terms of a possible yield projection. For instance, if you bought your shares for 3¢, and GBN.V pays a modest dividend of 10¢ a share, your yield factor, or real return will be well beyond inflation. I suppose the average book value amongst shareholders is probably a lot higher than 3¢.

http://www.thornburginvestments.com/literature/generic_lit/TH1401_realreal.pdf

-F6