LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

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LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

Post by SWW »

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Re: LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

Post by Doc »

Search for "groks" 30 year TIPS posts. A lot of your questions are answered there or at least there is some good discussion. "#crunchers" TIPS posts are another related source.

Personally I prefer a rolling ten year ladder in which you spend maturing rungs only if the market is tanking on your withdrawal date. If real rates were in the 2.5% plus range on the thirty's I might have another preference but I don't expect to see those rates again in my limited life expectancy. :(
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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Re: LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

Post by 209south »

You're in great shape with a sizable portfolio and modest spending above your expected social security amounts - so no you don't 'need' to build a liability-managed portfolio. Having said that, I have built a TIPs ladder out to 2045 using #cruncher's spreadsheets and it has given me great comfort (I have substantial planned spending not covered by social security.) While not at historic highs, building a ladder from 2030-2045 at ~1% real return, with no expenses from here out, makes me feel really good about this 'safest part of my portfolio'. Good luck!
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Kevin M
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Re: LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

Post by Kevin M »

I have the equivalent of my LMP mostly in 5-year CDs purchased directly from banks and credit unions. The early withdrawal option mitigates inflation risk and interest-rate risk, yet the yield is comparable to intermediate-term bonds (actually significantly higher than a Treasury of same maturity).

I Bonds also are useful to the extent you can take advantage of them, given the low annual purchase limits.

A TIPS ladder would be ideal, but like you, I am not satisfied with current rates, and am betting that my real return on the CDs will be good enough, without taking the term risk of longer-term TIPS.

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Bill M
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Re: LMP (Liability Matching Portfolio) and TIPS/Strips/CD's

Post by Bill M »

I have my LMP in 10-yr TIPS, split into 20 more-or-less equal portions in each of the 20 separate issues of 10-yr TIPS. So I'll have something maturing every 6 months to cover any unexpected expenses (life roof repairs, new A/C, etc).

TIPS vs something else??? If I wanted to worry about the LMP keeping up with inflation, I'd go for something else. With TIPS I don't have to worry. So I go with TIPS.

The more interesting problem I find is that (following the asset location rules) the TIPS are in my Roth IRA (bonds in qualified accounts, and so the imputed interest income is tax-free), but the first source for spending money (following the liquidation ordering rules) is the taxable accounts. So I find I'm regularly redeeming a portion of the maturing TIPS, selling some total-market-index in taxable account, moving the sale proceeds to my checking account, and then buying total-market-index in my Roth IRA with the proceeds from the non-reinvested TIPS. There must be a simpler way.
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