Winning the game and investing in Fixed Income

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TheTimeLord
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Winning the game and investing in Fixed Income

Post by TheTimeLord »

Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.

Edit:
Original post can be read to imply going to 100% Fixed Income, that was not my intention, it was intended to ask that once you feel you have "won the game" why invest any of your Fixed Income allocation in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs. Hopefully this clarifies what I was asking.
Last edited by TheTimeLord on Thu Jul 07, 2022 12:44 pm, edited 3 times in total.
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
The only long stuff I've ever held were individual Tips when rates were attractive. If they ever get up to a reasonable level I'd consider going longer then but for now, everything is short term, mostly Treasury, Munis and IG funds.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Drew31
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Re: Winning the game and investing in Fixed Income

Post by Drew31 »

jebmke wrote: Thu Jul 07, 2022 10:57 am
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
The only long stuff I've ever held were individual Tips when rates were attractive. If they ever get up to a reasonable level I'd consider going longer then but for now, everything is short term, mostly Treasury, Munis and IG funds.
Out of curiousity, what is your interpretation of reasonable level on TIPS? Seems like ~1-2% real is about as high as we've been since GFC based on some recent I was doing on FRED awhile back.
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

As a retiree (72) with a spouse (63) who works very part time, we are advocates of "Safety First." Our equity position (25% of portfolio) is invested in two ETFs (DFAX/DFAC) to mirror a world equity allocation with a value tilt. Our fixed income position (75%) is entirely in individual TIPS/I-bonds and laddered (using #Cruncher's spreadsheet) to age 100 for me, 90 for my spouse. We fully fund our daily expenses, with a 20% buffer for fun stuff, with Social Security and our TIPS/I-bonds. Our equity position is for whatever. I started SS at age 70, spouse at 62.
Not ideal for everyone, but it is ideal for us.
Statistical
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Re: Winning the game and investing in Fixed Income

Post by Statistical »

Our plan is to have only Treasuries. Rather than an 80/20 portfolio where 20 is total bonds. It is 85/15 with the 15 being 100% Treasuries. Since I don't have a good outlook on TIPS vs nominals it likely will be a mix (50/50 is as good of an allocation as any) with ibonds being lumped in with the TIPS portion.

I know most people wouldn't have such a large equity allocation but we are looking to retire early (<50) and want to ensure the funds last (solid real return). The same dynamic I think can apply to more conservative portfolios. Instead of 50/50 with 50 being all bonds a 60/40 with 40 being treasuries.
Last edited by Statistical on Thu Jul 07, 2022 11:10 am, edited 1 time in total.
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Re: Winning the game and investing in Fixed Income

Post by HomerJ »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
How many years of expenses are you keeping in fixed-income?

If only 3-5 years, then sure you can stick with short-duration investments.

If you have 10x in fixed-income, I'd have some intermediate bonds as well.
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Re: Winning the game and investing in Fixed Income

Post by JayB »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
Not sure what you mean by "won the game." If you mean that you now have high confidence that you have enough assets to live the rest of your life comfortably and provide for any legacy goals, why are you taking a continuing concentrated risk with equities? Can't you lose the same game at some point in the future with a high reliance on equities?

In my own situation, I determined years ago that had won the game and abandoned equities entirely. My entire porfolio is fixed income, including a SPIA, TIAA Traditional annuities, and laddered bonds held to maturity over many years.
Last edited by JayB on Thu Jul 07, 2022 11:18 am, edited 1 time in total.
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

Drew31 wrote: Thu Jul 07, 2022 11:00 am
jebmke wrote: Thu Jul 07, 2022 10:57 am
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
The only long stuff I've ever held were individual Tips when rates were attractive. If they ever get up to a reasonable level I'd consider going longer then but for now, everything is short term, mostly Treasury, Munis and IG funds.
Out of curiousity, what is your interpretation of reasonable level on TIPS? Seems like ~1-2% real is about as high as we've been since GFC based on some recent I was doing on FRED awhile back.
The ones I hold now I got in late 2008 -- about 3%. If it went into the 1-2 range I'd take a look again.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

HomerJ wrote: Thu Jul 07, 2022 11:10 am
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
How many years of expenses are you keeping in fixed-income?

If only 3-5 years, then sure you can stick with short-duration investments.

If you have 10x in fixed-income, I'd have some intermediate bonds as well.
To me, if I have "won the game" then my main concern is maintaining purchasing power so anything beyond short duration I lean towards I-Bonds and TIPS instead of nominal.
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Re: Winning the game and investing in Fixed Income

Post by AerialWombat »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
As I reconfigure my portfolio for decumulation, I find myself asking a similar question. I’ve even gone so far as to ask myself whether I really need equity exposure at all (I don’t). The fixed income side has a lot of options, and I’m slowly doing a process of elimination.

There’s a big part of me that thinks I’ll end up at “VGSH and chill” on the fixed income front. I don’t have I-Bonds because of past inability to open a Treasury Direct account. I’ve decided not to buy TIPS directly because of their complexity, phantom taxable income, and recent negative real yield. I’ll drop munis once I’m in a lower tax bracket. Corporates are too volatile. Long-term Treasuries have too much interest rate risk.

So I’m left with money markets, HYSA, CDs, and T-bills. I think I might just be OK with that, despite the obvious lack of inflation protection. I can counter that by keeping my current 30% equity allocation, taking the risk only in equities, as you mention. Plus, I’m over 50% rentals, and real estate is historically a good inflation hedge, too.

Since you’re already buying TIPS and I-Bonds for inflation protection, I think your plan is solid.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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drumboy256
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Re: Winning the game and investing in Fixed Income

Post by drumboy256 »

This is probably good a thread as any to ask for the "expected" outline of fixed income once that goal has been achieved.

End game goal is to move to Equity % / Fixed Income %
Fixed income, as defined (by most on this board) is a combo of: I-Bonds, Treasuries, Muni's, Bond Funds, Individual Bonds, TIPS, Cash, Money Market

Fixed income prior to retirement and/or winning the game:
1-5 years of cash sitting in a HYSA or Checking account depending on your preference.

VPW % is what drives your selling. Order of operations (assumption on my part):
Sell Fixed Income portion to cash / money market -> withdraw to checking account
Sell Equity % to re-balance to Fixed Income % desired.

Order of operations (in terms of account efficiency):
Taxable Equity
Taxable Bonds (Muni's)
Tax deferred: tIRA / or equiv
Tax deferred: 401k
Tax exempt: Roth / HSA

Based on that outline, if a 60/40 is desired, is the fixed income (e.g. cash in HYSA) considered a portion of that?
(assumption is yes, based on $1M portfolio, duration matched)
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VUSUX - LTT
10% STIP - Short term Tips
10% Cash

Non-duration matched:
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VBTLX - Total Bond
10% STIP - Short term Tips
10% Cash

Would most Bogleheads agree?
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Re: Winning the game and investing in Fixed Income

Post by bloom2708 »

Dreaming of a stock free portfolio is interesting. I've done it.

I'm not sure everyone flocking to TIPS is going to work out today. People needed to be in TIPS in December.

If you can do no stocks, then 20-30% stocks as a floor should help to keep up with inflation. Or have more to pass on to heirs.

20-30% also allows you to participate in the "stocks are sailing high" periods which people do not want to miss out on.
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

bloom2708 wrote: Thu Jul 07, 2022 11:40 am Dreaming of a stock free portfolio is interesting. I've done it.

I'm not sure everyone flocking to TIPS is going to work out today. People needed to be in TIPS in December.

If you can do no stocks, then 20-30% stocks as a floor should help to keep up with inflation. Or have more to pass on to heirs.

20-30% also allows you to participate in the "stocks are sailing high" periods which people do not want to miss out on.
TIPS will do the same thing today they did back in December. While people like to characterize the reason to buy TIPS as inflation protection, true enough, I see them as maintaining purchasing power irregardless of whether inflation is high or low. To be clear this thread is about how I am considering investing my the Fixed Income portion of my portfolios now that I feel like I have "won the game", not about having an all Fixed Income portfolio.
Last edited by TheTimeLord on Thu Jul 07, 2022 12:01 pm, edited 1 time in total.
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calmaniac
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Re: Winning the game and investing in Fixed Income

Post by calmaniac »

Statistical wrote: Thu Jul 07, 2022 11:09 am Our plan is to have only Treasuries.

I'm interested, what duration of "Treasuries"? What specific vehicle?

Quoted post edited for brevity
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Re: Winning the game and investing in Fixed Income

Post by TomatoTomahto »

drumboy256 wrote: Thu Jul 07, 2022 11:37 am This is probably good a thread as any to ask for the "expected" outline of fixed income once that goal has been achieved.

End game goal is to move to Equity % / Fixed Income %
Fixed income, as defined (by most on this board) is a combo of: I-Bonds, Treasuries, Muni's, Bond Funds, Individual Bonds, TIPS, Cash, Money Market

Fixed income prior to retirement and/or winning the game:
1-5 years of cash sitting in a HYSA or Checking account depending on your preference.

VPW % is what drives your selling. Order of operations (assumption on my part):
Sell Fixed Income portion to cash / money market -> withdraw to checking account
Sell Equity % to re-balance to Fixed Income % desired.

Order of operations (in terms of account efficiency):
Taxable Equity
Taxable Bonds (Muni's)
Tax deferred: tIRA / or equiv
Tax deferred: 401k
Tax exempt: Roth / HSA

Based on that outline, if a 60/40 is desired, is the fixed income (e.g. cash in HYSA) considered a portion of that?
(assumption is yes, based on $1M portfolio, duration matched)
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VUSUX - LTT
10% STIP - Short term Tips
10% Cash

Non-duration matched:
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VBTLX - Total Bond
10% STIP - Short term Tips
10% Cash

Would most Bogleheads agree?
Perhaps most Bogleheads would agree. This one thinks that it’s old style AA (percentage based) that gets in the way.

We have put $3M in various flavors of fixed income. Nothing scientific, but my wife is still earning money, we are at age 70 or approaching it, $2M seemed light and $4M seemed excessive. All other income goes to equities (both US and international).

Simple. Does not require a sharp pencil. The sharp pencil analysts haven’t “won the game,” they’ve just declared victory (as long as they don’t live very long or have medical bills or the market tanks, etc.).
I get the FI part but not the RE part of FIRE.
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Re: Winning the game and investing in Fixed Income

Post by 59Gibson »

I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
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Re: Winning the game and investing in Fixed Income

Post by AerialWombat »

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Last edited by AerialWombat on Thu Aug 25, 2022 7:06 pm, edited 1 time in total.
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Re: Winning the game and investing in Fixed Income

Post by fsrph »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
I'd add MYGA's to your list.


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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

59Gibson wrote: Thu Jul 07, 2022 12:27 pm I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
That was not what I was intending to ask, I was asking about using only certain types of instruments in you Fixed Income allocation so that you would only be taking risk in your Equity allocation but after rereading the original post I realize it was pretty muddled. Hopefully the edit I added clarifies things.
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

fsrph wrote: Thu Jul 07, 2022 12:35 pm
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
I'd add MYGA's to your list.


Francis
How does buying an MYGA differ from buying a nominal treasury?
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

TheTimeLord wrote: Thu Jul 07, 2022 11:50 am
bloom2708 wrote: Thu Jul 07, 2022 11:40 am Dreaming of a stock free portfolio is interesting. I've done it.

I'm not sure everyone flocking to TIPS is going to work out today. People needed to be in TIPS in December.

If you can do no stocks, then 20-30% stocks as a floor should help to keep up with inflation. Or have more to pass on to heirs.

20-30% also allows you to participate in the "stocks are sailing high" periods which people do not want to miss out on.
TIPS will do the same thing today they did back in December. While people like to characterize the reason to buy TIPS as inflation protection, true enough, I see them as maintaining purchasing power irregardless of whether inflation is high or low. To be clear this thread is about how I am considering investing my the Fixed Income portion of my portfolios now that I feel like I have "won the game", not about having an all Fixed Income portfolio.
Your point is subtle, but profound. In decumulation, TIPS assure an inflation protected income stream, regardless of the vagaries of the market. My TIPS portfolio, in place for about 3 years, took a substantial 6 figure hit in the first half of the year. My income stream, protected from inflation for the duration of our TIPS ladder, is not effected. Tell me what other investment presently available can say the same thing.
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Re: Winning the game and investing in Fixed Income

Post by HomerJ »

TheTimeLord wrote: Thu Jul 07, 2022 11:24 am
HomerJ wrote: Thu Jul 07, 2022 11:10 am
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Looking at my current situation makes me wonder, once you feel you have "won the game" is there any reason to invest in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs (for liquidity) so you are only taking risk on the equity side? I assume a SPIA might be a possibility at a certain age.
How many years of expenses are you keeping in fixed-income?

If only 3-5 years, then sure you can stick with short-duration investments.

If you have 10x in fixed-income, I'd have some intermediate bonds as well.
To me, if I have "won the game" then my main concern is maintaining purchasing power so anything beyond short duration I lean towards I-Bonds and TIPS instead of nominal.
Yes, I guess that makes sense. Not a bad plan. TIPs and IBonds can be used for intermediate and even long-term needs
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Re: Winning the game and investing in Fixed Income

Post by muffins14 »

Personally if I have won the game, I would care more about total income generated by the portfolio than exactly matching inflation.

To that end, I’d be fine investing in a mix of equity and bonds, where I’d match my bond duration to my investing horizon, which would likely mean a heap of long-term bonds. Long-term bonds like BLV provide more in coupon payments than short term bonds, which is good, because I want income more than I want to see my bond allocation stay at a stable price
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

bigskyguy wrote: Thu Jul 07, 2022 12:47 pm
TheTimeLord wrote: Thu Jul 07, 2022 11:50 am
bloom2708 wrote: Thu Jul 07, 2022 11:40 am Dreaming of a stock free portfolio is interesting. I've done it.

I'm not sure everyone flocking to TIPS is going to work out today. People needed to be in TIPS in December.

If you can do no stocks, then 20-30% stocks as a floor should help to keep up with inflation. Or have more to pass on to heirs.

20-30% also allows you to participate in the "stocks are sailing high" periods which people do not want to miss out on.
TIPS will do the same thing today they did back in December. While people like to characterize the reason to buy TIPS as inflation protection, true enough, I see them as maintaining purchasing power irregardless of whether inflation is high or low. To be clear this thread is about how I am considering investing my the Fixed Income portion of my portfolios now that I feel like I have "won the game", not about having an all Fixed Income portfolio.
Your point is subtle, but profound. In decumulation, TIPS assure an inflation protected income stream, regardless of the vagaries of the market. My TIPS portfolio, in place for about 3 years, took a substantial 6 figure hit in the first half of the year. My income stream, protected from inflation for the duration of our TIPS ladder, is not effected. Tell me what other investment presently available can say the same thing.
I appreciate you taking the time to catch that because that is the pretty much the whole point.
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Re: Winning the game and investing in Fixed Income

Post by HomerJ »

bigskyguy wrote: Thu Jul 07, 2022 12:47 pm Your point is subtle, but profound. In decumulation, TIPS assure an inflation protected income stream, regardless of the vagaries of the market. My TIPS portfolio, in place for about 3 years, took a substantial 6 figure hit in the first half of the year. My income stream, protected from inflation for the duration of our TIPS ladder, is not effected. Tell me what other investment presently available can say the same thing.
So was the income stream increased each month equal to inflation?
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

HomerJ wrote: Thu Jul 07, 2022 1:02 pm
bigskyguy wrote: Thu Jul 07, 2022 12:47 pm Your point is subtle, but profound. In decumulation, TIPS assure an inflation protected income stream, regardless of the vagaries of the market. My TIPS portfolio, in place for about 3 years, took a substantial 6 figure hit in the first half of the year. My income stream, protected from inflation for the duration of our TIPS ladder, is not effected. Tell me what other investment presently available can say the same thing.
So was the income stream increased each month equal to inflation?
The drop in the market value of the TIPS portfolio is completely compensated for by the rise in the interest rate of return for each rung of the portfolio. And with the entire portfolio adjusted upward on an annual basis by the CPI-W, annual scheduled withdrawal from the portfolio mirrors my annual investment, indexed for inflation. So my income stream, indexed for inflation, is unaffected by market swings, inflation rate changes, or interest rate fluctuations.
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Re: Winning the game and investing in Fixed Income

Post by carminered2019 »

I won the game and living of real estate rentals. I put 10x in CD, Treasury and I bonds then the rest in equities with no intention to rebalance.
Last edited by carminered2019 on Thu Jul 07, 2022 1:42 pm, edited 1 time in total.
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Re: Winning the game and investing in Fixed Income

Post by AnnetteLouisan »

AerialWombat wrote: Thu Jul 07, 2022 12:31 pm
59Gibson wrote: Thu Jul 07, 2022 12:27 pm I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
For those of us that hate volatility and have behavioral finance issues, eliminating equities can be very attractive.

OP isn't looking to eliminate equities entirely, though. It seems they are mostly interested in protecting purchasing power within the scope of the fixed income portion of the portfolio in isolation.
Exactly. People who hate volatility. Tons of people have no equities at all. It’s not optimal but it’s a thing out there.
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Re: Winning the game and investing in Fixed Income

Post by Hebell »

We are 15% equity. I do that for its upside potential and legacy reasons only. The rest is in fixed income, but none of it is mutual fund bond funds.

It is very roughly half TIPS and I-bonds. The next quarter would be stable value funds and MYGAs. The last quarter would be EE bonds and defined maturity bond etfs, where the bonds all mature in the same year (so I can hold to maturity and ignore pricing volatility in the interim).

We laddered into TIPS starting in 2016. At the time it felt almost senseless, but with interest rates so low we felt it was good for diversification purposes. Boy was it.
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Re: Winning the game and investing in Fixed Income

Post by slicendice »

bigskyguy wrote: Thu Jul 07, 2022 11:04 am As a retiree (72) with a spouse (63) who works very part time, we are advocates of "Safety First." Our equity position (25% of portfolio) is invested in two ETFs (DFAX/DFAC) to mirror a world equity allocation with a value tilt. Our fixed income position (75%) is entirely in individual TIPS/I-bonds and laddered (using #Cruncher's spreadsheet) to age 100 for me, 90 for my spouse. We fully fund our daily expenses, with a 20% buffer for fun stuff, with Social Security and our TIPS/I-bonds. Our equity position is for whatever. I started SS at age 70, spouse at 62.
Not ideal for everyone, but it is ideal for us.
That seems to me to be the most straightforward approach to "I have won, and I no longer want to play the game". You are liberated from paying attention to interest rates, inflation, stock market performance, how much in international etc... congratulations, well played!
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

I've been influenced by Dimensional's work on the topic of retirement income, which is based on the research of Robert Merton. Basically, their research indicates that a portfolio of 20% stocks and 80% duration-matched TIPs produces an optimal retirement income. They found that higher equity allocations were sub-optimal, as well as the use of short-term fixed income investments. It's easy enough to duration-match by either using a TIPs ladder or dynamically weighted TIPs bond funds. I-Bonds work as well, and don't require duration-matching since they have no interest rate risk. So, I'd pretty much stick with inflation-linked fixed income investments and keep things like CDs and T-Bills limited to short-term spending needs. If you've won the game, you can drop the equity allocation as well, even to nothing. I've got a lot of TIPs in my Roth IRA to avoid essentially being taxed on inflation, which is what happens if you have them in a traditional IRA and also happens to I-Bond interest.

https://www.dimensional.com/us-en/insig ... llocations
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drumboy256
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Re: Winning the game and investing in Fixed Income

Post by drumboy256 »

TomatoTomahto wrote: Thu Jul 07, 2022 11:55 am
drumboy256 wrote: Thu Jul 07, 2022 11:37 am This is probably good a thread as any to ask for the "expected" outline of fixed income once that goal has been achieved.

End game goal is to move to Equity % / Fixed Income %
Fixed income, as defined (by most on this board) is a combo of: I-Bonds, Treasuries, Muni's, Bond Funds, Individual Bonds, TIPS, Cash, Money Market

Fixed income prior to retirement and/or winning the game:
1-5 years of cash sitting in a HYSA or Checking account depending on your preference.

VPW % is what drives your selling. Order of operations (assumption on my part):
Sell Fixed Income portion to cash / money market -> withdraw to checking account
Sell Equity % to re-balance to Fixed Income % desired.

Order of operations (in terms of account efficiency):
Taxable Equity
Taxable Bonds (Muni's)
Tax deferred: tIRA / or equiv
Tax deferred: 401k
Tax exempt: Roth / HSA

Based on that outline, if a 60/40 is desired, is the fixed income (e.g. cash in HYSA) considered a portion of that?
(assumption is yes, based on $1M portfolio, duration matched)
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VUSUX - LTT
10% STIP - Short term Tips
10% Cash

Non-duration matched:
40% VTSAX - Total US
20% VTIAX - Total Intl.
20% VBTLX - Total Bond
10% STIP - Short term Tips
10% Cash

Would most Bogleheads agree?
Perhaps most Bogleheads would agree. This one thinks that it’s old style AA (percentage based) that gets in the way.

We have put $3M in various flavors of fixed income. Nothing scientific, but my wife is still earning money, we are at age 70 or approaching it, $2M seemed light and $4M seemed excessive. All other income goes to equities (both US and international).

Simple. Does not require a sharp pencil. The sharp pencil analysts haven’t “won the game,” they’ve just declared victory (as long as they don’t live very long or have medical bills or the market tanks, etc.).
That's a good way to look at it. The 60/40 is what I've found as the most "common" portfolio for those in retirement (around these parts). For me personally, I think I err more on your side of not having a fixed position or percentage. For my retirement, I'm planning on a 70/30'ish split although I expect it to bounce between 70/30 and 80/20 at times which I'm AOK with.... (fine, not the ETF) :)

Mechanics wise, duration matched makes the most sense (bonds and TIPs), although, while I would probably ladder TIPS with STIP/TIPX/LPTZ depending on needs, I think STIP + BNDW will probably be "good enough". Appreciate the insights.
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Re: Winning the game and investing in Fixed Income

Post by Apathizer »

I plan to keep it fairly simple and maintain about 60% globally diversified bonds, 30% globally diversified stocks, 10% cash/low risk interest. While unlikely, almost anything can lag for a year or two (hence recent bond performance), but that's unlikely for all asset classes. I"m also fortunate in that my pension and SS will probably cover all my essential retirement expenses. :D
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
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Re: Winning the game and investing in Fixed Income

Post by GaryA505 »

Fremdon Ferndock wrote: Thu Jul 07, 2022 2:22 pm I've been influenced by Dimensional's work on the topic of retirement income, which is based on the research of Robert Merton. Basically, their research indicates that a portfolio of 20% stocks and 80% duration-matched TIPs produces an optimal retirement income. They found that higher equity allocations were sub-optimal, as well as the use of short-term fixed income investments. It's easy enough to duration-match by either using a TIPs ladder or dynamically weighted TIPs bond funds. I-Bonds work as well, and don't require duration-matching since they have no interest rate risk. So, I'd pretty much stick with inflation-linked fixed income investments and keep things like CDs and T-Bills limited to short-term spending needs. If you've won the game, you can drop the equity allocation as well, even to nothing. I've got a lot of TIPs in my Roth IRA to avoid essentially being taxed on inflation, which is what happens if you have them in a traditional IRA and also happens to I-Bond interest.

https://www.dimensional.com/us-en/insig ... llocations
OK, how does the average person implement this "liability-driven investing (LDI) bond portfolio" simply, without a financial advisor or manager?
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

AerialWombat wrote: Thu Jul 07, 2022 12:31 pm
59Gibson wrote: Thu Jul 07, 2022 12:27 pm I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
For those of us that hate volatility and have behavioral finance issues, eliminating equities can be very attractive.

OP isn't looking to eliminate equities entirely, though. It seems they are mostly interested in protecting purchasing power within the scope of the fixed income portion of the portfolio in isolation.
Spot on, that is indeed what I am looking to do.
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

GaryA505 wrote: Thu Jul 07, 2022 2:54 pm
Fremdon Ferndock wrote: Thu Jul 07, 2022 2:22 pm I've been influenced by Dimensional's work on the topic of retirement income, which is based on the research of Robert Merton. Basically, their research indicates that a portfolio of 20% stocks and 80% duration-matched TIPs produces an optimal retirement income. They found that higher equity allocations were sub-optimal, as well as the use of short-term fixed income investments. It's easy enough to duration-match by either using a TIPs ladder or dynamically weighted TIPs bond funds. I-Bonds work as well, and don't require duration-matching since they have no interest rate risk. So, I'd pretty much stick with inflation-linked fixed income investments and keep things like CDs and T-Bills limited to short-term spending needs. If you've won the game, you can drop the equity allocation as well, even to nothing. I've got a lot of TIPs in my Roth IRA to avoid essentially being taxed on inflation, which is what happens if you have them in a traditional IRA and also happens to I-Bond interest.

https://www.dimensional.com/us-en/insig ... llocations
OK, how does the average person implement this "liability-driven investing (LDI) bond portfolio" simply, without a financial advisor or manager?
There's a wonderful thread about this that's worth reading through. To cut to the chase, you basically need to figure out the target duration that fits your goals, and then weight short and long term TIPS funds to match your target. You then have to re-adjust the weights periodically as the target duration declines as you age. Doesn't require a financial advisor or manager to do this.

viewtopic.php?f=10&t=240325
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

GaryA505 wrote: Thu Jul 07, 2022 2:54 pm
Fremdon Ferndock wrote: Thu Jul 07, 2022 2:22 pm I've been influenced by Dimensional's work on the topic of retirement income, which is based on the research of Robert Merton. Basically, their research indicates that a portfolio of 20% stocks and 80% duration-matched TIPs produces an optimal retirement income. They found that higher equity allocations were sub-optimal, as well as the use of short-term fixed income investments. It's easy enough to duration-match by either using a TIPs ladder or dynamically weighted TIPs bond funds. I-Bonds work as well, and don't require duration-matching since they have no interest rate risk. So, I'd pretty much stick with inflation-linked fixed income investments and keep things like CDs and T-Bills limited to short-term spending needs. If you've won the game, you can drop the equity allocation as well, even to nothing. I've got a lot of TIPs in my Roth IRA to avoid essentially being taxed on inflation, which is what happens if you have them in a traditional IRA and also happens to I-Bond interest.

https://www.dimensional.com/us-en/insig ... llocations
OK, how does the average person implement this "liability-driven investing (LDI) bond portfolio" simply, without a financial advisor or manager?
I would encourage you to read Wade Pfau (Safety First Investing), Michael Zwecher (Retirement Portfolios), or William Bernstein (Ages of the Investor, Rational Expectations) to further familiarize yourself with the “how to” mechanisms. Also look for LMP threads here on Bogleheads. The wealth of knowledge posters here have is stunnind.
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Re: Winning the game and investing in Fixed Income

Post by GAAP »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Edit:
Original post can be read to imply going to 100% Fixed Income, that was not my intention, it was intended to ask that once you feel you have "won the game" why invest any of your Fixed Income allocation in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs. Hopefully this clarifies what I was asking.
Possible reasons in no particular order:
  • Because you expect to need the fixed income to last longer than the maximum term on those types of bonds.
  • Because you have a desire for inflation protection in some other (non-USA) economy.
  • Because you don't buy the premise that USA Treasuries in any form are risk-free.
  • Because the inflation measure for those bonds doesn't align with your personal inflation measure.
  • [Political policy comment removed by admin LadyGeek]
  • Because you expect a degree of uncertainty with the accuracy of your "won the game" calculation.
Basically, any reason that does not align with the attributes provide by those bonds.
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Re: Winning the game and investing in Fixed Income

Post by barberakb »

GAAP wrote: Thu Jul 07, 2022 4:45 pm
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Edit:
Original post can be read to imply going to 100% Fixed Income, that was not my intention, it was intended to ask that once you feel you have "won the game" why invest any of your Fixed Income allocation in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs. Hopefully this clarifies what I was asking.
Possible reasons in no particular order:
  • Because you expect to need the fixed income to last longer than the maximum term on those types of bonds.
  • Because you have a desire for inflation protection in some other (non-USA) economy.
  • Because you don't buy the premise that USA Treasuries in any form are risk-free.
  • Because the inflation measure for those bonds doesn't align with your personal inflation measure.
  • [Political policy comment removed by admin LadyGeek]
  • Because you expect a degree of uncertainty with the accuracy of your "won the game" calculation.
Basically, any reason that does not align with the attributes provide by those bonds.
Great post. I will also add just because you want to...

I don't plan on ever going below a 40-60 allocation.
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

barberakb wrote: Thu Jul 07, 2022 5:17 pm I don't plan on ever going below a 40-60 allocation.
OP wasn't writing about allocation. He was writing about what the fixed side should/might be invested in.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

barberakb wrote: Thu Jul 07, 2022 5:17 pm
GAAP wrote: Thu Jul 07, 2022 4:45 pm
TheTimeLord wrote: Thu Jul 07, 2022 10:54 am Edit:
Original post can be read to imply going to 100% Fixed Income, that was not my intention, it was intended to ask that once you feel you have "won the game" why invest any of your Fixed Income allocation in any fixed income instruments other than I-Bonds, TIPS and short duration investments like T-Bills and CDs. Hopefully this clarifies what I was asking.
Possible reasons in no particular order:
  • Because you expect to need the fixed income to last longer than the maximum term on those types of bonds.
  • Because you have a desire for inflation protection in some other (non-USA) economy.
  • Because you don't buy the premise that USA Treasuries in any form are risk-free.
  • Because the inflation measure for those bonds doesn't align with your personal inflation measure.
  • [Political policy comment removed by admin LadyGeek]
  • Because you expect a degree of uncertainty with the accuracy of your "won the game" calculation.
Basically, any reason that does not align with the attributes provide by those bonds.
Great post. I will also add just because you want to...

I don't plan on ever going below a 40-60 allocation.
To be clear the thread only addresses the holdings in one's Fixed Income Allocation if they have determined they have "won the game" and does not imply any specific equity allocation or AA.
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Re: Winning the game and investing in Fixed Income

Post by Wanderingwheelz »

AnnetteLouisan wrote: Thu Jul 07, 2022 1:40 pm
AerialWombat wrote: Thu Jul 07, 2022 12:31 pm
59Gibson wrote: Thu Jul 07, 2022 12:27 pm I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
For those of us that hate volatility and have behavioral finance issues, eliminating equities can be very attractive.

OP isn't looking to eliminate equities entirely, though. It seems they are mostly interested in protecting purchasing power within the scope of the fixed income portion of the portfolio in isolation.
Exactly. People who hate volatility. Tons of people have no equities at all. It’s not optimal but it’s a thing out there.
Those people don’t hate volatility, they “hate to lose money”. There’s a big difference, because it is precisely the “suffering through” the volatility of risky assets that is the reward long-term growth.
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Re: Winning the game and investing in Fixed Income

Post by GaryA505 »

Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Winning the game and investing in Fixed Income

Post by Hebell »

GaryA505 wrote: Thu Jul 07, 2022 6:52 pm Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
I did mine all on my own.

Sure, buying individual TIPS at auction was a little bit scary the first time I did it. Probably the hardest part of the experience was finding where Fidelity and E-Trade buried treasury auctions on their website (!), and realizing that you can't even buy at auction till the auction announcement has happened and the buy button appears on the website after about 2:00 p.m.

Not knowing these things, no matter how trivial they are, can actually make a person a bit jittery the first go-round.

I also needed to figure out how to enter it in Quicken and handle the actual TIPS itself versus the premium/discount.

And I had to learn where to look up the inflation index so I knew what the actual value was of my TIPS on any given date. (That is what the TIPS is worth to me, on that date, assuming I hold it to maturity. It also ignores the pricing volatility associated with selling a TIPS on the secondary market. That's the price that I use inside of quicken. In quicken, I also create a separate security for each TIPS and I include the cusip in the name. I also add the maturity date into quicken, so I can track when my TIPS mature.)

So it's a different type of challenge, vs the navigating the treasurydirect website for i-bonds.

It probably took me a few months of reading, going through some of the Excel spreadsheets used by #cruncher on this website, and rebuilding them on my own. Then I had to figure out how I wanted to implement it in Quicken after I actually did the purchase. But after those few months went by I'm an old hand at it now.

You can do this on your own. But you really have to understand bonds.

My favorite book is Bonds: The Unbeaten Path to Secure Investment Growth By Hildy Richelson . I read it cover to cover a couple of times and have it dog eared with post-it notes.
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Re: Winning the game and investing in Fixed Income

Post by AerialWombat »

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Last edited by AerialWombat on Thu Aug 25, 2022 7:05 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Winning the game and investing in Fixed Income

Post by marcopolo »

Hebell wrote: Thu Jul 07, 2022 7:04 pm
GaryA505 wrote: Thu Jul 07, 2022 6:52 pm Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
I did mine all on my own.

Sure, buying individual TIPS at auction was a little bit scary the first time I did it. Probably the hardest part of the experience was finding where Fidelity and E-Trade buried treasury auctions on their website (!), and realizing that you can't even buy at auction till the auction announcement has happened and the buy button appears on the website after about 2:00 p.m.

Not knowing these things, no matter how trivial they are, can actually make a person a bit jittery the first go-round.

I also needed to figure out how to enter it in Quicken and handle the actual TIPS itself versus the premium/discount.

And I had to learn where to look up the inflation index so I knew what the actual value was of my TIPS on any given date. (That is what the TIPS is worth to me, on that date, assuming I hold it to maturity. It also ignores the pricing volatility associated with selling a TIPS on the secondary market. That's the price that I use inside of quicken. In quicken, I also create a separate security for each TIPS and I include the cusip in the name. I also add the maturity date into quicken, so I can track when my TIPS mature.)

So it's a different type of challenge, vs the navigating the treasurydirect website for i-bonds.

It probably took me a few months of reading, going through some of the Excel spreadsheets used by #cruncher on this website, and rebuilding them on my own. Then I had to figure out how I wanted to implement it in Quicken after I actually did the purchase. But after those few months went by I'm an old hand at it now.

You can do this on your own. But you really have to understand bonds.

My favorite book is Bonds: The Unbeaten Path to Secure Investment Growth By Hildy Richelson . I read it cover to cover a couple of times and have it dog eared with post-it notes.
Yeah. If that post was meant to convey that it really is not that complicated, i am not sure you really hit the mark.

I suspect my spouse will out last me. I am slowly moving to simplify my portfolio. The few negatives associated with a 50/50 intermediate duration TIPs/Total Bond fixed income implementation relative to building and maintaining a ladder, is easily outweighed by the simplicity for me as i age, and certainly for my spouse who has just enough interest to manage a simple portfolio, but would balk at something this complicated.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

GaryA505 wrote: Thu Jul 07, 2022 6:52 pm Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
How so? One option that fits OP's criteria is to dump it all in a short term Treasury fund.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Winning the game and investing in Fixed Income

Post by GaryA505 »

jebmke wrote: Thu Jul 07, 2022 7:58 pm
GaryA505 wrote: Thu Jul 07, 2022 6:52 pm Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
How so? One option that fits OP's criteria is to dump it all in a short term Treasury fund.
A short-term treasury fund is not going to cut it. It won't even come close to matching inflation.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

GaryA505 wrote: Thu Jul 07, 2022 8:00 pm
jebmke wrote: Thu Jul 07, 2022 7:58 pm
GaryA505 wrote: Thu Jul 07, 2022 6:52 pm Seems like these sort of schemes just add a lot of complexity, which I guess is OK if you don't mind paying someone thousands of dollars every year to run the thing.
How so? One option that fits OP's criteria is to dump it all in a short term Treasury fund.
A short-term treasury fund is not going to cut it. It won't even come close to matching inflation.
That may be but that isn't what he posted about and isn't what you posted about.

Who knows, maybe he wants to go heavy on equity and just peg his fixed at the short end. Short nominals or long Tips are the best fixed for inflation.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Winning the game and investing in Fixed Income

Post by AnnetteLouisan »

AerialWombat wrote: Thu Jul 07, 2022 7:18 pm
Wanderingwheelz wrote: Thu Jul 07, 2022 6:13 pm
AnnetteLouisan wrote: Thu Jul 07, 2022 1:40 pm
AerialWombat wrote: Thu Jul 07, 2022 12:31 pm
59Gibson wrote: Thu Jul 07, 2022 12:27 pm I do not understand why one would have zero equities. Would a min. of 20-30% really derail someone who's truly "won"?
For those of us that hate volatility and have behavioral finance issues, eliminating equities can be very attractive.

OP isn't looking to eliminate equities entirely, though. It seems they are mostly interested in protecting purchasing power within the scope of the fixed income portion of the portfolio in isolation.
Exactly. People who hate volatility. Tons of people have no equities at all. It’s not optimal but it’s a thing out there.
Those people don’t hate volatility, they “hate to lose money”. There’s a big difference, because it is precisely the “suffering through” the volatility of risky assets that is the reward long-term growth.
I understand what you're saying, and that might be the case for many people. For me personally, it absolutely is the volatility. The price movement alone has triggered my bad behavioral finance tendencies in the past, even when my investment was displayed in green text. I'd like to think I've matured a little bit on that front over the last few years, but I know it's still there. This is one of the factors that led me to making a balanced fund (Wellesley) my core holding during accumulation, because as a single security it doesn't gyrate as much day-to-day.

The portfolio changes that I'm contemplating right now for my decumulation phase will most certainly test whether I've grown out of this or not. My recent rebalancing act of selling a rental property and putting the sale proceeds into stocks and bonds did not cause anywhere near the amount of anxiety that I worried it might, so I'm hopeful the next phase of changes will go smoothly, also.

I think OP has discussed this elsewhere, but having the knowledge that the fixed income portion of your portfolio is, by itself, capable of supporting you financially for many years is quite liberating.
Same here. As many of you know from my posts, I’ve always had a very low equity portion in my AA, mostly because having had a lot of volatility in my life and using money as a source of stability, I didn’t want volatility in my portfolio. I got over that once I had a job with a pension entitlement, career success and excess savings, but I can see how one could feel that way if other sources of reliability and serenity were absent in ones life.
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