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 linktheac 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?
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).
link to original postSpeaking 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:
LTT = Long-term TreasuriesCode: 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%
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
Whether to go all at once into TIPS, or slowly, I think all at once. You wouldn't add fire insurance incrementally, after all.