Latest WealthTrack Episode - former fed official says own TIPS!
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Latest WealthTrack Episode - former fed official says own TIPS!
On latest episode of wealthtrack, Richard Clarida (Vice chairman of fed under Jerome Powell) says every investor "should own tips." I have owned ibonds but never tips. He was rather vague in his recommendations, as I would expect from a former fed offical.
So does this mean short tips, intermediate tips? What percentage of bond holdings?
I've seen many rec 50/50 intermediate tips to total bond market/intermediate index.
The Lazy Golfer portfolio is even 2/3rd TIPS via VIPSX.
Or should one just look at target date funds for retiree for instance (Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares is @ 11% of holdings in 2020 Target date fund). This seems a very minor tilt towards short tips, not sure what good it does.
So does this mean short tips, intermediate tips? What percentage of bond holdings?
I've seen many rec 50/50 intermediate tips to total bond market/intermediate index.
The Lazy Golfer portfolio is even 2/3rd TIPS via VIPSX.
Or should one just look at target date funds for retiree for instance (Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares is @ 11% of holdings in 2020 Target date fund). This seems a very minor tilt towards short tips, not sure what good it does.
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Re: Latest WealthTrack Episdoe - the fed says own TIPS
I suggest you search for threads started or contributed to on this topic by forum member vineviz.DesertInvestor wrote: ↑Thu Jan 26, 2023 4:44 pm On latest episode of wealthtrack, Richard Clarida (Vice chairman of fed under Jerome Powell) says every investor "should own tips." I have owned ibonds but never tips. My question is he is vague. Short tips, intermediate tips? What percentage?
In general, the general advice is to match the duration of TIPS to your spending needs timeline.
I think the optimal percentage is somewhat more vague...
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
Even after all the discussion I don't think anyone can establish a clear conclusion that there is any specific allocation to TIPS or duration for TIPS that is generally indicated. An investor has to consider his own situation and objectives and perhaps arrive at a choice for himself. Different preferences usually arise from focus on different features of priority for one investor or another. You probably won't even see a clear opinion across different commentators for the same situation. Note 50/50 TIPS/Treasuries is an easy n=2 type of decision. N=2 means when two choices are available you take half of each. It is probably easy to land on intermediate duration for the same reason though some people hate volatility so much they fall back to the shortest duration. Alternatively if you like liability matching then the argument for long TIPS arises. To cloud the picture one can select individual TIPS, fixed TIPS ladders of short or long term, or rolling ladders.
Good luck.
Good luck.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
I'd be careful about listening to anyone who says "every investor should...".DesertInvestor wrote: ↑Thu Jan 26, 2023 4:44 pm On latest episode of wealthtrack, Richard Clarida (Vice chairman of fed under Jerome Powell) says every investor "should own tips." I have owned ibonds but never tips. He was rather vague in his recommendations, as I would expect from a former fed offical.
Making overly broad generalizations on TV isn't a flattering look in my opinion. Feel free to ignore Mr. Clarida, I know I will.
Regards,
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
Fixed income is a special purpose tool. So, if you want to figure out what fixed income you should be using, you need to first define your purpose.
Generally, if you are a USD consumer and your purpose is saving for a steady real income stream over a long retirement, then early in accumulation you should probably have no TIPS (and possibly no fixed income at all). As retirement approaches, you should likely be building up a portfolio of roughly duration-matched TIPS designed to dovetail with Social Security, any pensions you might have, and possibly additional annuities you might purchase.
If you are using your fixed income for some other purpose, TIPS might be a bad choice.
I note DFA uses this approach for its Target funds. The federal TSP also does something similar with the G Fund, which has some implicit IP in it.
It is true the Target funds from companies like Vanguard do this only a little, and otherwise lean more heavily on non-IP bonds around and into retirement. I don't know of a good case for doing that, and I strongly suspect that is because if you look at the size of the TIPS market compared to the fixed income held by the large Target funds, there really isn't enough TIPS to go around.
Generally, if you are a USD consumer and your purpose is saving for a steady real income stream over a long retirement, then early in accumulation you should probably have no TIPS (and possibly no fixed income at all). As retirement approaches, you should likely be building up a portfolio of roughly duration-matched TIPS designed to dovetail with Social Security, any pensions you might have, and possibly additional annuities you might purchase.
If you are using your fixed income for some other purpose, TIPS might be a bad choice.
I note DFA uses this approach for its Target funds. The federal TSP also does something similar with the G Fund, which has some implicit IP in it.
It is true the Target funds from companies like Vanguard do this only a little, and otherwise lean more heavily on non-IP bonds around and into retirement. I don't know of a good case for doing that, and I strongly suspect that is because if you look at the size of the TIPS market compared to the fixed income held by the large Target funds, there really isn't enough TIPS to go around.
Re: Latest WealthTrack Episode - former fed official says own TIPS!
I'm curious if this statement was a response to a specific question that is left out of OP's quote.
"Every investor" is a bit of an absolute and overly broad statement, which are usually falsified with numerous examples of individual situations and objectives that TIPS are not suitable for. With most things the answer is "it depends".
Most of these financial shows come with explicit disclaimers that things said on the show are not specific financial advice.
"Every investor" is a bit of an absolute and overly broad statement, which are usually falsified with numerous examples of individual situations and objectives that TIPS are not suitable for. With most things the answer is "it depends".
Most of these financial shows come with explicit disclaimers that things said on the show are not specific financial advice.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: Latest WealthTrack Episode - former fed official says own TIPS!
Which is one reason listening to shows, quoting quips, taking examples out of context from books, and things of that sort do more harm than good.JoMoney wrote: ↑Fri Jan 27, 2023 8:11 am I'm curious if this statement was a response to a specific question that is left out of OP's quote.
"Every investor" is a bit of an absolute and overly broad statement, which are usually falsified with numerous examples of individual situations and objectives that TIPS are not suitable for. With most things the answer is "it depends".
Most of these financial shows come with explicit disclaimers that things said on the show are not specific financial advice.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
I listened to the recording and frankly this whole discussion was a very small part of the program. The interviewer basically came out and point blank asked if he thought everyone should own TIPS. The answer was yes. However there wasn't really any explanation or further discovery from there. It was pretty much a one off. Personally, I think everyone should consider owning some TIPS and probably more importantly when they want to start owning them and how that fits with their strategy.JoMoney wrote: ↑Fri Jan 27, 2023 8:11 am I'm curious if this statement was a response to a specific question that is left out of OP's quote.
"Every investor" is a bit of an absolute and overly broad statement, which are usually falsified with numerous examples of individual situations and objectives that TIPS are not suitable for. With most things the answer is "it depends".
Most of these financial shows come with explicit disclaimers that things said on the show are not specific financial advice.
Re: Latest WealthTrack Episode - former fed official says own TIPS!
I am in a position where all of my income outside of investments is inflation protected: Military retirement, VA disability and next June Social Security. So I don't see a great need to invest in TIPS. Happy to consider if others think it is warranted.
Cheers,
Ray
Cheers,
Ray
Retired Military in Tulsa, 100% VA, MFJ, Age 66, Spouse 61, 2023 Effective Fed Tax Rate 12.17%, OK State 0%
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
What other long-term investment is riskless in the long run? That's a very unique attribute for an investment. You buy a 30 year TIPS and you know what you're getting in real terms for the next 30 years. Try that with any other type of bond, stock, or property.
I've had half my fixed income allocation dedicated to inflation indexed bonds for my entire investing career because I agree with this guy that most people probably ought to include this asset class in their portfolio.
I've had half my fixed income allocation dedicated to inflation indexed bonds for my entire investing career because I agree with this guy that most people probably ought to include this asset class in their portfolio.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Re: Latest WealthTrack Episode - former fed official says own TIPS!
TIPS don't somehow compensate losses to inflation in other instruments, such as a fixed nominal pension, if you had one. To do that you have to plan on your portfolio being able to support income that increases faster than inflation. TIPS or any other bonds that can be expected to have positive real returns do that though over any period of time they may not.djmbob wrote: ↑Fri Jan 27, 2023 8:31 am I am in a position where all of my income outside of investments is inflation protected: Military retirement, VA disability and next June Social Security. So I don't see a great need to invest in TIPS. Happy to consider if others think it is warranted.
Cheers,
Ray
So what remains is what you want bonds for. By one argument with those income sources you might not own any bonds at all. That depends on what you are trying to do, of course. By another argument owning bonds that are not inflation indexed makes no sense because people normally should want to live in a real valued world. Some other choice in bonds might make more sense to someone in particular. It might be true, for example, that the best diversifier of a higher stock allocation portfolio is long Treasuries rather than TIPS. By diversity we mean the risk of the combination measured by standard deviation of annual returns is less than the weighted average risk of the two components.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
Uh oh.. Makes me think the Fed has little confidence that inflation will be well controlled.DesertInvestor wrote: ↑Thu Jan 26, 2023 4:44 pm On latest episode of wealthtrack, Richard Clarida (Vice chairman of fed under Jerome Powell) says every investor "should own tips."
Re: Latest WealthTrack Episode - former fed official says own TIPS!
Clarida is the FORMER Vice Chairman of the Federal Reserve. That said, the essence of his commentary was that the Fed will "stay the course," and do whatever is necessary to achieve the 2% annual inflation target.Svensk Anga wrote: ↑Fri Jan 27, 2023 9:16 amUh oh.. Makes me think the Fed has little confidence that inflation will be well controlled.DesertInvestor wrote: ↑Thu Jan 26, 2023 4:44 pm On latest episode of wealthtrack, Richard Clarida (Vice chairman of fed under Jerome Powell) says every investor "should own tips."
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
Why wouldn't you want all sources of income inflation-protected? Meaning it is good your non-investment income is inflation protected, so why wouldn't it also be good if your investment income was inflation-protected?djmbob wrote: ↑Fri Jan 27, 2023 8:31 am I am in a position where all of my income outside of investments is inflation protected: Military retirement, VA disability and next June Social Security. So I don't see a great need to invest in TIPS. Happy to consider if others think it is warranted.
Cheers,
Ray
Over course if your investments are not ultimately about providing income, maybe you would have no bonds at all.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
In event you do not need income, but you are also not going to have 100% stock portfolio there is no need for inflation protection? Seems in all cases it makes sense to split it down the middle and do 50% intermediate TIPS and 50% total bond/intermediate bonds if one were to say hold a 30% fixed income allocation for rebalancing purposes.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
That is what I am thinking. Its at Schwab, so maybe just schwab total bond 50% and schwab intermediate tips 50%. Pretty simple and low fees. My need for cash is not for over 10 years or even longer.White Coat Investor wrote: ↑Fri Jan 27, 2023 8:44 am What other long-term investment is riskless in the long run? That's a very unique attribute for an investment. You buy a 30 year TIPS and you know what you're getting in real terms for the next 30 years. Try that with any other type of bond, stock, or property.
I've had half my fixed income allocation dedicated to inflation indexed bonds for my entire investing career because I agree with this guy that most people probably ought to include this asset class in their portfolio.
Re: Latest WealthTrack Episode - former fed official says own TIPS!
I don't degree with the idea that TIPS are a good choice for many portfolios.
With 80/20 AA, 4-5% yields, and further accumulation of bonds I want to take interest rate risk in the same manner I want to take stock risk.
I-Bonds, social security, future accumulation, portfolio size and hopefully stock growth give enough expected protection against inflation.
With 80/20 AA, 4-5% yields, and further accumulation of bonds I want to take interest rate risk in the same manner I want to take stock risk.
I-Bonds, social security, future accumulation, portfolio size and hopefully stock growth give enough expected protection against inflation.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
There was a research paper a while back which I can't seem to put my hands on right now, but it said the average investor's bond portfolio should be very heavily weighted towards TIPS perhaps as much as 100% due to high risk unanticipated inflation poses to retirement portfolios.
I believe Larry Swedroe who used to post here is also an advocate of TIPS. There are others.
I believe Larry Swedroe who used to post here is also an advocate of TIPS. There are others.
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
There was a research paper a while back [here is a link to the entire paper]:
https://deliverypdf.ssrn.com/delivery.p ... INDEX=TRUE
but it said the average investor's bond portfolio should be very heavily weighted towards TIPS perhaps as much as 100% due to high risk unanticipated inflation poses to retirement portfolios.
I believe Larry Swedroe who used to post here is also an advocate of TIPS. There are others
Here is the abstract:
Inflation Risk and Inflation-Protected and
Nominal Bonds
Philipp Karl ILLEDITSCH∗
June 1, 2009
Abstract
I decompose inflation risk into (i) a component that is correlated with real returns
on positive-net-supply securities (stocks, real estate, etc.) and factors that determine
investor’s preferences and investment opportunities and (ii) a residual component. In
equilibrium, only the first component earns a risk premium. Therefore investors should
avoid exposure to the residual component. All nominal bonds, including the nominal
money-market account, are equally exposed to the residual component except inflationprotected
bonds, which provide a means to hedge it. Every investor should put 100%
of his wealth in positive-net-supply securities and inflation-protected bonds and should
finance every long/short position in nominal bonds with an equal amount of other
nominal bonds or by borrowing/lending in the nominal money market account; i.e.
investors should hold a zero-investment portfolio of nominal bonds and the nominal
money market account.
∗
https://deliverypdf.ssrn.com/delivery.p ... INDEX=TRUE
but it said the average investor's bond portfolio should be very heavily weighted towards TIPS perhaps as much as 100% due to high risk unanticipated inflation poses to retirement portfolios.
I believe Larry Swedroe who used to post here is also an advocate of TIPS. There are others
Here is the abstract:
Inflation Risk and Inflation-Protected and
Nominal Bonds
Philipp Karl ILLEDITSCH∗
June 1, 2009
Abstract
I decompose inflation risk into (i) a component that is correlated with real returns
on positive-net-supply securities (stocks, real estate, etc.) and factors that determine
investor’s preferences and investment opportunities and (ii) a residual component. In
equilibrium, only the first component earns a risk premium. Therefore investors should
avoid exposure to the residual component. All nominal bonds, including the nominal
money-market account, are equally exposed to the residual component except inflationprotected
bonds, which provide a means to hedge it. Every investor should put 100%
of his wealth in positive-net-supply securities and inflation-protected bonds and should
finance every long/short position in nominal bonds with an equal amount of other
nominal bonds or by borrowing/lending in the nominal money market account; i.e.
investors should hold a zero-investment portfolio of nominal bonds and the nominal
money market account.
∗
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Re: Latest WealthTrack Episode - former fed official says own TIPS!
Exactly. Given the option to eliminate the main risk to bonds without giving up much of anything in return, why wouldn't you take it?PotashDoggerd wrote: ↑Thu Feb 02, 2023 2:21 pm There was a research paper a while back [here is a link to the entire paper]:
https://deliverypdf.ssrn.com/delivery.p ... INDEX=TRUE
but it said the average investor's bond portfolio should be very heavily weighted towards TIPS perhaps as much as 100% due to high risk unanticipated inflation poses to retirement portfolios.
I believe Larry Swedroe who used to post here is also an advocate of TIPS. There are others
Here is the abstract:
Inflation Risk and Inflation-Protected and
Nominal Bonds
Philipp Karl ILLEDITSCH∗
June 1, 2009
Abstract
I decompose inflation risk into (i) a component that is correlated with real returns
on positive-net-supply securities (stocks, real estate, etc.) and factors that determine
investor’s preferences and investment opportunities and (ii) a residual component. In
equilibrium, only the first component earns a risk premium. Therefore investors should
avoid exposure to the residual component. All nominal bonds, including the nominal
money-market account, are equally exposed to the residual component except inflationprotected
bonds, which provide a means to hedge it. Every investor should put 100%
of his wealth in positive-net-supply securities and inflation-protected bonds and should
finance every long/short position in nominal bonds with an equal amount of other
nominal bonds or by borrowing/lending in the nominal money market account; i.e.
investors should hold a zero-investment portfolio of nominal bonds and the nominal
money market account.
∗
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course