Please Help Me with TIPS/Treasuries

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Lee Timmer
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Joined: Fri Sep 17, 2021 1:58 pm

Please Help Me with TIPS/Treasuries

Post by Lee Timmer »

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.
NMBob
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Re: Please Help Me with TIPS/Treasuries

Post by NMBob »

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AnnetteLouisan
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Re: Please Help Me with TIPS/Treasuries

Post by AnnetteLouisan »

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.
Series I bonds
Topic Author
Lee Timmer
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Joined: Fri Sep 17, 2021 1:58 pm

Re: Please Help Me with TIPS/Treasuries

Post by Lee Timmer »

AnnetteLouisan wrote: Mon Sep 20, 2021 3:29 pm
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.
Series I bonds
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.
dbr
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Re: Please Help Me with TIPS/Treasuries

Post by dbr »

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.
NMBob
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Re: Please Help Me with TIPS/Treasuries

Post by NMBob »

another good read about treasuries, a thread on ....First 20% of bonds in long-term Treasuries

viewtopic.php?t=287627&start=500
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Noobvestor
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Re: Please Help Me with TIPS/Treasuries

Post by Noobvestor »

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
Dude2
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Re: Please Help Me with TIPS/Treasuries

Post by Dude2 »

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.
Then ’tis like the breath of an unfee’d lawyer.
Angst
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Re: Please Help Me with TIPS/Treasuries

Post by Angst »

Lee Timmer wrote: Mon Sep 20, 2021 3:32 pm
AnnetteLouisan wrote: Mon Sep 20, 2021 3:29 pm
Lee Timmer wrote: Mon Sep 20, 2021 3:06 pm [Snip] ...
Series I bonds
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.
+1 on the I Bonds

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.
hudson
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Re: Please Help Me with TIPS/Treasuries

Post by hudson »

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.
Investing 58%: Yes!
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
Topic Author
Lee Timmer
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Joined: Fri Sep 17, 2021 1:58 pm

Re: Please Help Me with TIPS/Treasuries

Post by Lee Timmer »

Thanks to all of you for your replies and info. I appreciate it sincerely. I have a lot to learn.
Topic Author
Lee Timmer
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Joined: Fri Sep 17, 2021 1:58 pm

Re: Please Help Me with TIPS/Treasuries

Post by Lee Timmer »

Angst wrote: Tue Sep 21, 2021 8:08 pm
Lee Timmer wrote: Mon Sep 20, 2021 3:32 pm
AnnetteLouisan wrote: Mon Sep 20, 2021 3:29 pm
Lee Timmer wrote: Mon Sep 20, 2021 3:06 pm [Snip] ...
Series I bonds
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.
+1 on the I Bonds

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.
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.
Northern Flicker
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Re: Please Help Me with TIPS/Treasuries

Post by Northern Flicker »

Lee Timmer wrote: Mon Sep 20, 2021 3:32 pm
AnnetteLouisan wrote: Mon Sep 20, 2021 3:29 pm
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.
Series I bonds
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.
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.
Topic Author
Lee Timmer
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Joined: Fri Sep 17, 2021 1:58 pm

Re: Please Help Me with TIPS/Treasuries

Post by Lee Timmer »

Northern Flicker wrote: Thu Sep 23, 2021 12:00 am
Lee Timmer wrote: Mon Sep 20, 2021 3:32 pm
AnnetteLouisan wrote: Mon Sep 20, 2021 3:29 pm
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.
Series I bonds
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.
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.
75% equities/25% bonds
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.
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ApeAttack
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Re: Please Help Me with TIPS/Treasuries

Post by ApeAttack »

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).
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.

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.
Northern Flicker
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Re: Please Help Me with TIPS/Treasuries

Post by Northern Flicker »

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.
rossington
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Re: Please Help Me with TIPS/Treasuries

Post by rossington »

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.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Northern Flicker
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Re: Please Help Me with TIPS/Treasuries

Post by Northern Flicker »

25% to VGIT or BND are both fine as a single bond fund solution.
Northern Flicker
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Re: Please Help Me with TIPS/Treasuries

Post by Northern Flicker »

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.
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