Please Help Me with TIPS/Treasuries
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Please Help Me with TIPS/Treasuries
Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
- AnnetteLouisan
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Re: Please Help Me with TIPS/Treasuries
Series I bondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:06 pm Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
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Re: Please Help Me with TIPS/Treasuries
I just purchased my annual maximum of $10K in I Bonds. Are you saying that TIPS will be unnecessary? Should I just go with 100% of my bond allocation in VGIT (Vanguard Intermediate Treasuries), which I have now? Thank you for the suggestion.AnnetteLouisan wrote: ↑Mon Sep 20, 2021 3:29 pmSeries I bondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:06 pm Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
Re: Please Help Me with TIPS/Treasuries
If you sum up all the debate, information, opinions, advantages and disadvantages, then the clear answer as to whether TIPS and Treasuries are advised in your situation is maybe, or perhaps it depends, or something.
The issue is more a matter of deciding to hold things that have one set of properties compared to other things with a little bit different set of properties where there isn't really a lot of difference in the overall end result.
Strategies to make decision in cases like that are the make up your mind and get on with it strategy or the waffle strategy of going with some of everything. You get to choose. Maybe you have some specific needs or worries that indicate you want TIPS/Treasuries properties of no default risk, no inflation risk (TIPS), and less expected return -- or not. There are so many combinations over duration, default, and inflation risk together with stock/bond asset allocation that any given end result can come from many selections of individual assets.
The issue is more a matter of deciding to hold things that have one set of properties compared to other things with a little bit different set of properties where there isn't really a lot of difference in the overall end result.
Strategies to make decision in cases like that are the make up your mind and get on with it strategy or the waffle strategy of going with some of everything. You get to choose. Maybe you have some specific needs or worries that indicate you want TIPS/Treasuries properties of no default risk, no inflation risk (TIPS), and less expected return -- or not. There are so many combinations over duration, default, and inflation risk together with stock/bond asset allocation that any given end result can come from many selections of individual assets.
Re: Please Help Me with TIPS/Treasuries
another good read about treasuries, a thread on ....First 20% of bonds in long-term Treasuries
viewtopic.php?t=287627&start=500
viewtopic.php?t=287627&start=500
- Noobvestor
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Re: Please Help Me with TIPS/Treasuries
TIPS are good for inflation - Treasuries good for deflation. I hold some of each (plus Series I and EE bonds).
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: Please Help Me with TIPS/Treasuries
Sometimes advice about holding TIPS plays into what overall percentage of bonds are in the portfolio. The idea is that the greater the number, the more TIPS are warranted. Note that target retirement funds seem to add them when glide path exceeds 40% of bonds or thereabout. The idea might be that, since nominal bonds are susceptible to unexpected inflation, i.e. the principle is eaten away by inflation, stocks (while having greater risk) may help in times of inflation because businesses can raise their prices along with inflation. Obviously this is a theory, not a law. So, the less stocks you hold, and more nominal bonds, the more inflation should worry you. TIPS aren't the solution to everything because their low risk/low return characteristics aren't going to help grow your portfolio. On the other hand, once your portfolio is grown, why take as much risk with it? This would be the time to migrate into TIPS. Hope that paints a picture of a situation where an investor would consider TIPS.
Now Treasurys are another story. Sometimes bond investors favor them because in crisis times they hold up strongly. However, they typically yield less. Bogleheads are divided on if it matters or not, many favoring the total bond market index fund approach.
Now Treasurys are another story. Sometimes bond investors favor them because in crisis times they hold up strongly. However, they typically yield less. Bogleheads are divided on if it matters or not, many favoring the total bond market index fund approach.
Then ’tis like the breath of an unfee’d lawyer.
Re: Please Help Me with TIPS/Treasuries
+1 on the I BondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:32 pmI just purchased my annual maximum of $10K in I Bonds. Are you saying that TIPS will be unnecessary? Should I just go with 100% of my bond allocation in VGIT (Vanguard Intermediate Treasuries), which I have now? Thank you for the suggestion.
I'm not a big proponent of holding a high % of fixed income for someone in your situation - most of my investing life I've been around/up to 15% bonds, and never wanted to be much higher. Today, with negative real rates, I haven't been buying my 30 and 10 yr rungs of TIPS at auction for my LMP (liability matching portfolio) and instead have been limiting myself to buying I Bonds (including $5k with IRS tax refund) and EE Bonds. When real rates become positive again I'll resume buying TIPS at auction within my Roth IRA and probably cut back on or stop buying the I Bonds and EE Bonds. And definitely, if nominal rates rise high enough and stay there long enough, I recognize I may need to stop buying EE Bonds and possibly sell off some of the "younger" ones. Not saying this is how you should approach things, just that this is how I do it.
Re: Please Help Me with TIPS/Treasuries
Investing 58%: Yes!Lee Timmer wrote: ↑Mon Sep 20, 2021 3:06 pm Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
Little debt: good!
TIPS in a portfolio? Excellent
Treasuries in a portfolio? Excellent
Consider reading Swedroe's bond book.
Also W. Bernstein's Ages of the investor....and more: viewtopic.php?p=5372762#p5372762
Here's a discussion: Should Everyone Have Tips? viewtopic.php?p=5374529#p5374529
LMP-3: Roll your own pension- Build a tips ladder!
viewtopic.php?p=3394361#p3394361
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Re: Please Help Me with TIPS/Treasuries
Thanks to all of you for your replies and info. I appreciate it sincerely. I have a lot to learn.
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Re: Please Help Me with TIPS/Treasuries
Thank you for the well-considered reply. Again, I'm rather new to investing, so please forgive my ignorance: Are you saying that you are purchasing only I bonds for now, and that you have stopped purchasing other types of bonds? The $10K I bond that I purchased for the year doesn't quite meet my portfolio's bond percentage allocation, so is there a bond ETF you would recommend in my situation? I have considered TIPS and nominals, but I HATE their low yield. I almost feel like just upping my allocation to my index funds. Again, thank you for your help.Angst wrote: ↑Tue Sep 21, 2021 8:08 pm+1 on the I BondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:32 pmI just purchased my annual maximum of $10K in I Bonds. Are you saying that TIPS will be unnecessary? Should I just go with 100% of my bond allocation in VGIT (Vanguard Intermediate Treasuries), which I have now? Thank you for the suggestion.
I'm not a big proponent of holding a high % of fixed income for someone in your situation - most of my investing life I've been around/up to 15% bonds, and never wanted to be much higher. Today, with negative real rates, I haven't been buying my 30 and 10 yr rungs of TIPS at auction for my LMP (liability matching portfolio) and instead have been limiting myself to buying I Bonds (including $5k with IRS tax refund) and EE Bonds. When real rates become positive again I'll resume buying TIPS at auction within my Roth IRA and probably cut back on or stop buying the I Bonds and EE Bonds. And definitely, if nominal rates rise high enough and stay there long enough, I recognize I may need to stop buying EE Bonds and possibly sell off some of the "younger" ones. Not saying this is how you should approach things, just that this is how I do it.
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Re: Please Help Me with TIPS/Treasuries
what is your asset allocation, expressed in percentages? asset classes should never be recommended or disadvised in isolation, but as part of an overall asset allocation.Lee Timmer wrote: ↑Mon Sep 20, 2021 3:32 pmI just purchased my annual maximum of $10K in I Bonds. Are you saying that TIPS will be unnecessary? Should I just go with 100% of my bond allocation in VGIT (Vanguard Intermediate Treasuries), which I have now? Thank you for the suggestion.AnnetteLouisan wrote: ↑Mon Sep 20, 2021 3:29 pmSeries I bondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:06 pm Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
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Re: Please Help Me with TIPS/Treasuries
75% equities/25% bondsNorthern Flicker wrote: ↑Thu Sep 23, 2021 12:00 amwhat is your asset allocation, expressed in percentages? asset classes should never be recommended or disadvised in isolation, but as part of an overall asset allocation.Lee Timmer wrote: ↑Mon Sep 20, 2021 3:32 pmI just purchased my annual maximum of $10K in I Bonds. Are you saying that TIPS will be unnecessary? Should I just go with 100% of my bond allocation in VGIT (Vanguard Intermediate Treasuries), which I have now? Thank you for the suggestion.AnnetteLouisan wrote: ↑Mon Sep 20, 2021 3:29 pmSeries I bondsLee Timmer wrote: ↑Mon Sep 20, 2021 3:06 pm Hello, all. Newbie here, and I don't mean just as a member. I'm hoping someone can help me with TIPS and treasuries.
I'm 49 years old and got a somewhat late start in investing. I'm investing roughly 58% of my monthly income, as I have very little debt. Having said that, is it advisable to own both TIPS and treasury bonds in a portfolio? I'm starting to learn about TIPS but am still confused. I'm not necessarily looking for growth (they're bonds, after all) but protection/preservation. ANY help will be greatly appreciated. I love this forum; it's very helpful.
Equities: 39% total stock market (US)
26% developed world
10% real estate
Bonds: 25% (all) in Vanguard intermediate treasuries (VGIT) for now. I can always change it, and might.
Re: Please Help Me with TIPS/Treasuries
Vanguard total bond mutual fund, a TIPS mutual fund, an international bond fund, and I-Bonds cover enough bases for me. Splitting the difference between nominal growth and inflation protection.Noobvestor wrote: ↑Mon Sep 20, 2021 7:25 pm TIPS are good for inflation - Treasuries good for deflation. I hold some of each (plus Series I and EE bonds).
EE bonds are interesting, but have too long of a time horizon for me... maybe if they paid out every 5 years (instead of 20) I would consider them.
May all your index funds gain +0.5% today.
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Re: Please Help Me with TIPS/Treasuries
At 25% of portfolio in bonds, and with stock allocations that we would expect to overperform if inflation accelerates, and underperform if we get disinflation, I would not suggest re-allocating your treasury allocation to TIPS. If you do want some TIPS, I would suggest increasing bonds to say 30% and holding 15% treasuries and 15% TIPS.
Maybe we would invert that and say at your current allocation, holding intermediate treasuries is fine. If you move to a less aggressive allocation down the road, with a higher bond allocation, then holding a bond portfolio that is 50/50 treasuries and TIPS makes sense.
Maybe we would invert that and say at your current allocation, holding intermediate treasuries is fine. If you move to a less aggressive allocation down the road, with a higher bond allocation, then holding a bond portfolio that is 50/50 treasuries and TIPS makes sense.
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Re: Please Help Me with TIPS/Treasuries
VBTLX or BND and set it and forget it. Why complicate things? As you said the goal is not for performance but rather stability in stock market downturns.
Stocks are your hedge against inflation.
Stocks are your hedge against inflation.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: Please Help Me with TIPS/Treasuries
25% to VGIT or BND are both fine as a single bond fund solution.
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Re: Please Help Me with TIPS/Treasuries
If in a taxable account VGIT generates interest income that is not taxed by states that tax income. Unlike the federal exemption for munis, the state tax exemption for treasuries does not factor into the market rate.