Robot Monster wrote: ↑Sun Jan 09, 2022 10:12 am
theac wrote: ↑Sat Jan 08, 2022 9:52 pm
OK, maybe I'll start looking into Tips and reconsider them. Thanks
If I did decide to go with the Tips, how would you handle that?
Gradually do exchanges, or just do them all at once and be done with it?
And what if inflation were to drop off in the near future, like a year or two?
At that point would Tips still be the better choice?
From further up you mention you are "approx 80% holding in Total Bond Market at Vanguard". My parents are also heavily invested in nominals. There's a 10yr TIPS auction this month, and I'm discussing the idea with them of investing a big chunk of their money in it. They happen to be in cash. The Fed is now maybe looking to raise rates to combat inflation, but it's an unknown how high they'll go, and what inflation will be. Jeremy Siegel does
not expect yields on cash or bonds to go above inflation and he predicts "cumulative inflation of 20% to 25%. I'm not talking about one year. I'm talking about a period of three to four years. It could be 7%, 7%, 7%, or 5%, 5%, 5%, 5%."
article link
Basically, we don't know what kind of negative real yields cash or nominal bonds might experience. If my parents buy the 10yr TIPS they'd know what real yield they're going to get. They would eliminate that risk. We don't know how out of control inflation will get, and no one can say for sure what the Fed will do. TIPS protect you against this uncertainty. TIPS allow you to not worry about the Fed.
I think of TIPS like fire insurance. Imagine there's a fire raging in your neighborhood. You don't know if it's gonna head your way, so you buy insurance in case it does. The insurance doesn't necessarily pay off. The fire could go the opposite direction. Likewise, inflation could come down next year, and the investment in TIPS doesn't pay off, but this will be no different from any other time insurance doesn't pay off. Most of the time insurance doesn't pay off, but that doesn't mean it didn't make sense to have it.
Speaking personally, my own portfolio is roughly 65% TIPS, 25% stocks, 10% cash. My portfolio is heavily influenced by Vineviz (see below).
Speaking very generally, it usually makes sense to hold
some TIPS when your portfolio is is less than 70% stocks.
If your portfolio is less than 50% stocks it could make sense to have
most of your bonds as TIPS.
A
very rough rule of thumb, in table form:
Code: Select all
Stocks LTT TIPS STIG
100% 0% 0% 0%
90% 10% 0% 0%
80% 20% 0% 0%
70% 20% 10% 0%
60% 20% 20% 0%
50% 20% 30% 0%
40% 10% 40% 10%
30% 0% 50% 20%
LTT = Long-term Treasuries
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
link to original post
Whether to go all at once into TIPS, or slowly, I think all at once. You wouldn't add fire insurance incrementally, after all.
Thanks. I just read all the posts between your above reply up to the present moment, and although I don't fully understand TIPS, nor IN THE PAST have felt comfortable with them, just to play it safe and to diversify my Total Bond Fund holding, will start with the minimum $50k req'd to open VAIPX Adm shares
(but I'm considering $100k, haven't decided yet).
Now if I-Bonds didn't have the $10k annual limit, I would have definitely been buying a lot more of them over the years rather than buying into this TIPS fund, because I really do like I-Bonds and have been comfortable with them for years. But that was never an option.
I don't own any Vanguard ETFs and thought I might go with one now, but I see they only have one for short-term on TIPS, so will have to stick with VAIPX.
Thanks to all for the info on TIPS you've posted.
Seems like a good time to switch some of the Total Bond to VAIPX.
P.S. In comparing the 2 funds,
just looking at this seems to say VAIPX is a good bet, right?
(I'm showing pre-tax returns since this is all held in a ROTH)
Average annual performance—quarter end
...................VAIPX Adm........VBTLX Adm
YTD..............5.68%.............-1.67%
YTD as-of date......12/31/2021........12/31/2021
1-year..................5.68%................-1.67%
3-year..................8.24%.................4.82%
5-year..................5.18%.................3.58%
10-year................2.98%.................2.86%
1-, 3-, 5-, 10-year as-of date....12/31/2021.............12/31/2021
Since inception........................4.19%...................4.08%
Inception date.....................06/10/2005.............11/12/2001
SEC yield 30 day....................–1.70% A,G...............1.60% A
SEC yield as-of date...............01/06/2022.............01/06/2022
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)