Winning the game and investing in Fixed Income

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Lastrun
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Re: Winning the game and investing in Fixed Income

Post by Lastrun »

bigskyguy wrote: Thu Jul 07, 2022 11:04 am Not ideal for everyone, but it is ideal for us.
Enjoy your posts on what you all done with your TIPS ladder. An elegant approach and glad it is working out for the both of you.
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

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.
I guess it wasn't clear in the original post, but the short term stuff was just for liquidity purposes for those who like to have a bit of cash readily available. You could use I-Bonds for this but I consider them too valuable to be used for everyday liquidity given their flexible duration and purchasing limits.
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Hebell
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Re: Winning the game and investing in Fixed Income

Post by Hebell »

To be clear, my previous post really emphasized the complications setting it up for tracking, as opposed to the ease of buying it. If you just want to buy it, and don't worry about tracking it in Quicken, all that other stuff goes away!
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Re: Winning the game and investing in Fixed Income

Post by GaryA505 »

jebmke wrote: Thu Jul 07, 2022 8:04 pm
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.
I believe he also mentioned I-Bonds and TIPS as well.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
bigskyguy
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

Lastrun wrote: Thu Jul 07, 2022 8:09 pm
bigskyguy wrote: Thu Jul 07, 2022 11:04 am Not ideal for everyone, but it is ideal for us.
Enjoy your posts on what you all done with your TIPS ladder. An elegant approach and glad it is working out for the both of you.
Thx
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AerialWombat
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Re: Winning the game and investing in Fixed Income

Post by AerialWombat »

deleted
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 jebmke »

GaryA505 wrote: Thu Jul 07, 2022 9:21 pm
jebmke wrote: Thu Jul 07, 2022 8:04 pm
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.
I believe he also mentioned I-Bonds and TIPS as well.
Sure, that’s an option. Investing in Tips is not complicated and inexpensive (as in no ER).
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Wanderingwheelz
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Re: Winning the game and investing in Fixed Income

Post by Wanderingwheelz »

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.
Normally when an investor sells something in the green, assuming it’s not because they need to money, it’s because they think there are better choices to keep from “losing their gains”. I think that behavior is still supported by my comments since selling is motivated by fear of declines.

This is one big reason why many people do far better by paying for the guidance of a financial planner than if they self directed. For some people the “don’t just do something, stand there” behavior is easy to stick to, while for others it is not.
Being wrong compounds forever.
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AnnetteLouisan
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Re: Winning the game and investing in Fixed Income

Post by AnnetteLouisan »

AerialWombat wrote: Thu Jul 07, 2022 10:21 pm
AnnetteLouisan wrote: Thu Jul 07, 2022 8:06 pm 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.
There was another thread a few days ago about this, in relation to investors becoming more comfortable with risk and volatility as the size of their nest egg grew over time. I can totally see how a pension in particular would ease a lot of such concern. If I recall correctly, you're also in real estate, so I'm surprised that the real estate didn't provide an early "calming" effect.

For everybody with a pension: Does having that inflation-adjusted monthly income impact how you view TIPS in particular?
My (divorced) parents are in real estate, I’m not. I never touch the stuff, lol. They have separate finances from each other and from me. The benefit to me is I don’t have to support them or any other family member currently (which is a huge plus and easy to take for granted). RE is illiquid, variable in price, and has costs, risks and entanglements that frighten me a lot, and we have significant succession issues.

On the TIPS question, I have access to a treasury fund through work. Combined with I bonds, HYSAs and some tbills, my appetite for TIPS specifically is less than it would be otherwise (plus not really understanding them too well - WSJ had a negative story about TIPS in November and cited some technical negative that I didn’t understand). Hence my risk became being too low in equities, something I am gradually remedying.
Last edited by AnnetteLouisan on Fri Jul 08, 2022 10:00 am, edited 8 times in total.
Escapevelocity
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Re: Winning the game and investing in Fixed Income

Post by Escapevelocity »

TheTimeLord wrote: Thu Jul 07, 2022 12:42 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"?
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.
I agree that it doesn't make sense to take on credit risk on the fixed income side. That's why almost all of my fixed income is FDIC cash, Treasuries (Funds), TIPs and I-Bonds.
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Re: Winning the game and investing in Fixed Income

Post by KlangFool »

OP,

If you had won the game, why would you spend more time optimizing your Fixed Income? VBTLX -> Total Bond Market Index fund and MMF should be good enough.

To each its own. I am spending time shopping for ebike and ebike trailer.

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Re: Winning the game and investing in Fixed Income

Post by Jaylat »

KlangFool wrote: Fri Jul 08, 2022 8:23 am OP,

If you had won the game, why would you spend more time optimizing your Fixed Income? VBTLX -> Total Bond Market Index fund and MMF should be good enough.
Because he wants to avoid taking risk in his bond portfolio. VBTLX is down over 10% this year, and the short term fixed income options OP has listed have stayed at par.

I think OP is doing exactly the right thing.
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Re: Winning the game and investing in Fixed Income

Post by KlangFool »

Jaylat wrote: Fri Jul 08, 2022 8:32 am
KlangFool wrote: Fri Jul 08, 2022 8:23 am OP,

If you had won the game, why would you spend more time optimizing your Fixed Income? VBTLX -> Total Bond Market Index fund and MMF should be good enough.
Because he wants to avoid taking risk in his bond portfolio. VBTLX is down over 10% this year, and the short term fixed income options OP has listed have stayed at par.

I think OP is doing exactly the right thing.
Jaylat,

1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
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Re: Winning the game and investing in Fixed Income

Post by Jaylat »

KlangFool wrote: Fri Jul 08, 2022 8:37 am 1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
1, 3) Well of course it matters, because managing a portfolio is a life challenge and you want to do a good job of it. You may not need 100% of the money, but that doesn't mean you can be careless with the rest.

2) I realize this is a contrarian view here, but I very much disagree that losses in a bond portfolio are "short term." They signal a very real loss of income over an extended period of time. The losses are the NPV of that reduced income, and affect you whether or not you choose to sell and lock in the loss.
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

Actually, I think you'll find that a duration-matching strategy using TIPs bond funds is much simpler to implement and also has the advantage that you don't need to manage the interest payments spun off by individual TIPs in a TIPs ladder. It's worth looking into.
"Risk is what’s left over when you think you’ve thought of everything." ~ Morgan Housel
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Re: Winning the game and investing in Fixed Income

Post by KlangFool »

Jaylat wrote: Fri Jul 08, 2022 8:51 am
KlangFool wrote: Fri Jul 08, 2022 8:37 am 1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
1, 3) Well of course it matters, because managing a portfolio is a life challenge and you want to do a good job of it. You may not need 100% of the money, but that doesn't mean you can be careless with the rest.

2) I realize this is a contrarian view here, but I very much disagree that losses in a bond portfolio are "short term." They signal a very real loss of income over an extended period of time. The losses are the NPV of that reduced income, and affect you whether or not you choose to sell and lock in the loss.
To each its own. Life is too short. If you spend time on X, you cannot do Y.

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Blues
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Re: Winning the game and investing in Fixed Income

Post by Blues »

Fremdon Ferndock wrote: Fri Jul 08, 2022 8:52 am Actually, I think you'll find that a duration-matching strategy using TIPs bond funds is much simpler to implement and also has the advantage that you don't need to manage the interest payments spun off by individual TIPs in a TIPs ladder. It's worth looking into.
I'm doing something similar...or should say, am in the process of doing so by increasing TIPS exposure in our portfolio.

While I own a number of Treasury bills and notes, as well as brokered CDs, I have decided to manage our TIPS investments with a combination of short and intermediate term (Vanguard) funds.

(We are not liability matching as we have no specific targets, per se. We have a conservative portfolio, with about 33% equity exposure and the rest in a variety of "safe" fixed income instruments and funds, including the TSP. We are more concerned with preserving what we have, with some growth, as opposed to taking on much additional risk. My inflation adjusted federal pension provides more than our monthly expenses require. Holding off on SS for the missus until she reaches 70, a few more years down the road.)
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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

KlangFool wrote: Fri Jul 08, 2022 8:37 am
Jaylat wrote: Fri Jul 08, 2022 8:32 am
KlangFool wrote: Fri Jul 08, 2022 8:23 am OP,

If you had won the game, why would you spend more time optimizing your Fixed Income? VBTLX -> Total Bond Market Index fund and MMF should be good enough.
Because he wants to avoid taking risk in his bond portfolio. VBTLX is down over 10% this year, and the short term fixed income options OP has listed have stayed at par.

I think OP is doing exactly the right thing.
Jaylat,

1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
jebmke
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

TheTimeLord wrote: Fri Jul 08, 2022 9:25 am From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
I took the same approach when I retired in 2007. As I mentioned before, the only long position I took was in 2008 when Tips rates were at 3% -- I loaded up on 2025s which were long at the time. I still have them and will allow them to roll off. Over the next decade or so I plan to draw down my fixed income considerably so I don't see a significant need to go very long, even if Tips rates get attractive 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 »

KlangFool wrote: Fri Jul 08, 2022 8:54 am
Jaylat wrote: Fri Jul 08, 2022 8:51 am
KlangFool wrote: Fri Jul 08, 2022 8:37 am 1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
1, 3) Well of course it matters, because managing a portfolio is a life challenge and you want to do a good job of it. You may not need 100% of the money, but that doesn't mean you can be careless with the rest.

2) I realize this is a contrarian view here, but I very much disagree that losses in a bond portfolio are "short term." They signal a very real loss of income over an extended period of time. The losses are the NPV of that reduced income, and affect you whether or not you choose to sell and lock in the loss.
To each its own. Life is too short. If you spend time on X, you cannot do Y.

KlangFool
Life is short and time is valuable but I guess where we disagree is the amount of time it takes to build/maintain a TIPS ladder. Once built it seems to me to be one of the least time intensive methods possible, you just sit there waiting for you TIPS to mature and possibly add additional rungs if you continue breathing. Maybe I am missing something but it seems pretty simple and straightforward from my perspective as long as your goal is maintaining purchasing power as opposed to realizing gains. Just tell me where I am wrong.
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jebmke
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Re: Winning the game and investing in Fixed Income

Post by jebmke »

TheTimeLord wrote: Fri Jul 08, 2022 9:33 am Life is short and time is valuable but I guess where we disagree is the amount of time it takes to build/maintain a TIPS ladder. Once built it seems to me to be one of the least time intensive methods possible, you just sit there waiting for you TIPS to mature and possibly add additional rungs if you continue breathing. Maybe I am missing something but it seems pretty simple and straightforward from my perspective as long as your goal is maintaining purchasing power as opposed to realizing gains. Just tell me where I am wrong.
It isn't complicated to manage the ladder. The tax reporting could be a little messy if this is in a taxable account.
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 dbr »

TheTimeLord wrote: Fri Jul 08, 2022 9:25 am

From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
I would not think where you take the risk is as important as what the overall risk is. Remember if you make different choices in fixed income you can also adjust the stock bond allocation so the total comes out where you want it. How fixed income choices affect the overall is a subtle problem where it is hard to show clear preferences, though there may be some.

While I truly dislike the whole "game" metaphor, Bill Bernstein's point was not about fixed income but about cutting down high stock risk if you have a lot at risk in stocks and don't need the return. Need/ability/willingness method of deciding asset allocation would produce similar results.

I admit I made a small adjustment out of some long TIPS to intermediate TIPS some years ago and recently to all TIPS rather than TIPS and Treasuries, but if I had it to do over I would have done that a long time ago. In the outcome the difference was not much.

We control our investment risk by selecting an appropriate stock/bond allocation.

Ladders are an appropriate tool for short and high rates of spending such as bridging to SS. A long term TIPS ladder is an option but I see it as theory more than something a person would put a lot in. That could depend on other sources of income and how well funded the whole plan is to start with.
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Re: Winning the game and investing in Fixed Income

Post by Frank2012 »

dbr wrote: Fri Jul 08, 2022 9:38 am
TheTimeLord wrote: Fri Jul 08, 2022 9:25 am

From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
I would not think where you take the risk is as important as what the overall risk is. Remember if you make different choices in fixed income you can also adjust the stock bond allocation so the total comes out where you want it. How fixed income choices affect the overall is a subtle problem where it is hard to show clear preferences, though there may be some.

While I truly dislike the whole "game" metaphor, Bill Bernstein's point was not about fixed income but about cutting down high stock risk if you have a lot at risk in stocks and don't need the return. Need/ability/willingness method of deciding asset allocation would produce similar results.

I admit I made a small adjustment out of some long TIPS to intermediate TIPS some years ago and recently to all TIPS rather than TIPS and Treasuries, but if I had it to do over I would have done that a long time ago. In the outcome the difference was not much.

We control our investment risk by selecting an appropriate stock/bond allocation.

Ladders are an appropriate tool for short and high rates of spending such as bridging to SS. A long term TIPS ladder is an option but I see it as theory more than something a person would put a lot in. That could depend on other sources of income and how well funded the whole plan is to start with.
Yep, I am trying to manage risk via my asset allocation of 50% stocks (US and International) and 50% bonds (Total Bond and a Treasury bond Fund...due to what's available in my 401k I have a total bond fund, but in IRA's I use FUAMX). I've won the game, but not comfortable holding all cash and bonds, so 50/50 works for me.
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Re: Winning the game and investing in Fixed Income

Post by TomatoTomahto »

Blues wrote: Fri Jul 08, 2022 9:13 am
Fremdon Ferndock wrote: Fri Jul 08, 2022 8:52 am Actually, I think you'll find that a duration-matching strategy using TIPs bond funds is much simpler to implement and also has the advantage that you don't need to manage the interest payments spun off by individual TIPs in a TIPs ladder. It's worth looking into.
I'm doing something similar...or should say, am in the process of doing so by increasing TIPS exposure in our portfolio.

While I own a number of Treasury bills and notes, as well as brokered CDs, I have decided to manage our TIPS investments with a combination of short and intermediate term (Vanguard) funds.

(We are not liability matching as we have no specific targets, per se. We have a conservative portfolio, with about 33% equity exposure and the rest in a variety of "safe" fixed income instruments and funds, including the TSP. We are more concerned with preserving what we have, with some growth, as opposed to taking on much additional risk. My inflation adjusted federal pension provides more than our monthly expenses require. Holding off on SS for the missus until she reaches 70, a few more years down the road.)
It’s unfortunate that the technique has been dubbed LMP. Out of respect for the language, I usually call ours “quasi-LMP” or sometimes “bucket based” (ie, safe and risk buckets).

I have no idea of our liabilities next year, much less 10 years from now, so I can’t very well match them. I do hope to be alive. I don’t know what x is, so I can’t say how many x we have in our $3M. I honestly marvel at the precision with which many here calibrate their approach to retirement.
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 Blues »

dbr wrote: Fri Jul 08, 2022 9:38 am
I would not think where you take the risk is as important as what the overall risk is. Remember if you make different choices in fixed income you can also adjust the stock bond allocation so the total comes out where you want it. How fixed income choices affect the overall is a subtle problem where it is hard to show clear preferences, though there may be some.

While I truly dislike the whole "game" metaphor, Bill Bernstein's point was not about fixed income but about cutting down high stock risk if you have a lot at risk in stocks and don't need the return. Need/ability/willingness method of deciding asset allocation would produce similar results.

I admit I made a small adjustment out of some long TIPS to intermediate TIPS some years ago and recently to all TIPS rather than TIPS and Treasuries, but if I had it to do over I would have done that a long time ago. In the outcome the difference was not much.

We control our investment risk by selecting an appropriate stock/bond allocation.

Ladders are an appropriate tool for short and high rates of spending such as bridging to SS. A long term TIPS ladder is an option but I see it as theory more than something a person would put a lot in. That could depend on other sources of income and how well funded the whole plan is to start with.
Well said, sir. :beer
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Re: Winning the game and investing in Fixed Income

Post by KlangFool »

TheTimeLord wrote: Fri Jul 08, 2022 9:25 am
KlangFool wrote: Fri Jul 08, 2022 8:37 am
Jaylat wrote: Fri Jul 08, 2022 8:32 am
KlangFool wrote: Fri Jul 08, 2022 8:23 am OP,

If you had won the game, why would you spend more time optimizing your Fixed Income? VBTLX -> Total Bond Market Index fund and MMF should be good enough.
Because he wants to avoid taking risk in his bond portfolio. VBTLX is down over 10% this year, and the short term fixed income options OP has listed have stayed at par.

I think OP is doing exactly the right thing.
Jaylat,

1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
TheTimeLord ,

" maintaining purchasing power is more important than realizing gains "

In my opinion, if you believe that, buying physical gold/silver makes a lot more sense than worrying about fixed income. Keeping 1% to 5% of your portfolio in physical gold/silver is a lot more safer than optimizing Fixed Income.

Too each its own.

KlangFool
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Re: Winning the game and investing in Fixed Income

Post by KlangFool »

TheTimeLord wrote: Fri Jul 08, 2022 9:33 am
Life is short and time is valuable but I guess where we disagree is the amount of time it takes to build/maintain a TIPS ladder. Once built it seems to me to be one of the least time intensive methods possible, you just sit there waiting for you TIPS to mature and possibly add additional rungs if you continue breathing. Maybe I am missing something but it seems pretty simple and straightforward from my perspective as long as your goal is maintaining purchasing power as opposed to realizing gains. Just tell me where I am wrong.
TheTimeLord.

I do not trust TIPS. I do not believe that it can maintain purchasing power.

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TheTimeLord
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

dbr wrote: Fri Jul 08, 2022 9:38 am
TheTimeLord wrote: Fri Jul 08, 2022 9:25 am

From my personal perspective, if you have "won the game" then maintaining purchasing power is more important than realizing gains because you aren't dependent on gains (returns above 0% real) for your retirement plan to work. Because of this I see no reason to take on risk in the Fixed Income allocation of my portfolio, instead I prefer that any risk I take be in the equity allocation of my portfolio. As far as if it matters or not once someone achieves some level savings, in most cases likely not but if it doesn't matter why take the risk of 70s style inflationary environment. Hopefully this outlines the way I am approaching this.
I would not think where you take the risk is as important as what the overall risk is. Remember if you make different choices in fixed income you can also adjust the stock bond allocation so the total comes out where you want it. How fixed income choices affect the overall is a subtle problem where it is hard to show clear preferences, though there may be some.

While I truly dislike the whole "game" metaphor, Bill Bernstein's point was not about fixed income but about cutting down high stock risk if you have a lot at risk in stocks and don't need the return. Need/ability/willingness method of deciding asset allocation would produce similar results.

I admit I made a small adjustment out of some long TIPS to intermediate TIPS some years ago and recently to all TIPS rather than TIPS and Treasuries, but if I had it to do over I would have done that a long time ago. In the outcome the difference was not much.

We control our investment risk by selecting an appropriate stock/bond allocation.

Ladders are an appropriate tool for short and high rates of spending such as bridging to SS. A long term TIPS ladder is an option but I see it as theory more than something a person would put a lot in. That could depend on other sources of income and how well funded the whole plan is to start with.
Normally equations are easier to solve when you remove variables. You might find this excerpt interesting from Physician On Fire, who also offers his own opinions as well. Perhaps it is getting older or perhaps my mother didn't hold me enough when I was young but Dr. Bernstein's perspective as described by Physician On Fire has merit to me as a framework, especially since I already run my investments as multiple portfolios.

https://www.physicianonfire.com/win-the-game/
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that’s your “risk portfolio,” which he describes this way:
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

TheTimeLord wrote: Fri Jul 08, 2022 9:33 am
KlangFool wrote: Fri Jul 08, 2022 8:54 am
Jaylat wrote: Fri Jul 08, 2022 8:51 am
KlangFool wrote: Fri Jul 08, 2022 8:37 am 1) If someone had won the game, it won't matter.

2) Our investment strategy should not be based on short-term (YTD) result.

3) In my book, someone that had won the game = 50X annual expense or higher. At that level, why should any of this matters?

KlangFool
1, 3) Well of course it matters, because managing a portfolio is a life challenge and you want to do a good job of it. You may not need 100% of the money, but that doesn't mean you can be careless with the rest.

2) I realize this is a contrarian view here, but I very much disagree that losses in a bond portfolio are "short term." They signal a very real loss of income over an extended period of time. The losses are the NPV of that reduced income, and affect you whether or not you choose to sell and lock in the loss.
To each its own. Life is too short. If you spend time on X, you cannot do Y.

KlangFool
Life is short and time is valuable but I guess where we disagree is the amount of time it takes to build/maintain a TIPS ladder. Once built it seems to me to be one of the least time intensive methods possible, you just sit there waiting for you TIPS to mature and possibly add additional rungs if you continue breathing. Maybe I am missing something but it seems pretty simple and straightforward from my perspective as long as your goal is maintaining purchasing power as opposed to realizing gains. Just tell me where I am wrong.
It did take some time to become familiar, and comfortable, with the concept of Liability Matching. I earlier listed four texts that formed the foundation for my understanding. And #Cruncher (eyebonds.info is the website source) provided the hard work of just how to construct a TIPS ladder. Over a few years, probably 30 minutes each year of actual work time, I constructed a ladder that covers from 2022-2049 for my spouse and me, with some years purchasing TIPS at auction, other years purchasing TIPS via our Schwab website, all in my IRA. It now takes maybe 10 minutes yearly to do the actual work of transferring funds, when the annual ladder rungs mature, from my IRA to our taxable brokerage account.
I am a retired physician, and as I suspect most of you know, my profession is not well known for its financial acumen. In preparing for my 35+ year medical career, I invested approximately 80 hours weekly for 10 years (medical school, internship, residency, fellowship) as the foundation for my career. And I continued with countless hours of journal reading and ongoing CME (continuing medical education). The 40+ hours devoted to reading a few books, the 4-5 hours to structure and implement a TIPS ladder, and the 20-30 minutes devoted annually in retirement to assure a 25+ year retirement seems like small potatoes, comparatively.
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

Well, TIPs ladders are trickier than they first appear.

For one thing, the real return from each TIP is based on the year of issue so you don't have a common scale when you're trying to figure out how much to buy at each maturity. For another, there is the matter of the interest payments along the way and what you do with those. The YTM is based on hypothetically re-investing those interest payments into the parent bond, which of course you won't be doing. Just having a ladder of equal dollar TIPs steps is not sufficient to produce a fixed inflation-adjusted target income per year over the period of the ladder.

These problems are more easily managed using a duration-matching TIPs bond fund strategy. Admittedly, this is not a "set it an forget it" approach because you have to continuously adjust the relative weights of the funds; perhaps every quarter or so. It's not a given that you'll be able to do that competently when you get into your late 80s. Therefore, it might make sense to target the duration of the duration-matching strategy to age 85 or so. In addition, a shorter TIPs ladder from, say, age 85 to life expectancy and/or I-Bonds can be purchased to extend the LMP income ladder beyond age 85 with assets that are less difficult to manage in your dotage. Or you could plan to purchase a SPIA at that point.

I decided to forego the idea of a year-by-year TIPs ladder and rely on I-Bonds and a 2-rung TIPs ladder with steps at age 85 and age 90. I have other income to help fill the gaps.
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Re: Winning the game and investing in Fixed Income

Post by bigskyguy »

Fremdon Ferndock wrote: Fri Jul 08, 2022 11:12 am Well, TIPs ladders are trickier than they first appear.

For one thing, the real return from each TIP is based on the year of issue so you don't have a common scale when you're trying to figure out how much to buy at each maturity. For another, there is the matter of the interest payments along the way and what you do with those. The YTM is based on hypothetically re-investing those interest payments into the parent bond, which of course you won't be doing. Just having a ladder of equal dollar TIPs steps is not sufficient to produce a fixed inflation-adjusted target income per year over the period of the ladder.

These problems are more easily managed using a duration-matching TIPs bond fund strategy. Admittedly, this is not a "set it an forget it" approach because you have to continuously adjust the relative weights of the funds; perhaps every quarter or so. It's not a given that you'll be able to do that competently when you get into your late 80s. Therefore, it might make sense to target the duration of the duration-matching strategy to age 85 or so. In addition, a shorter TIPs ladder from, say, age 85 to life expectancy and/or I-Bonds can be purchased to extend the LMP income ladder beyond age 85 with assets that are less difficult to manage in your dotage. Or you could plan to purchase a SPIA at that point.

I decided to forego the idea of a year-by-year TIPs ladder and rely on I-Bonds and a 2-rung TIPs ladder with steps at age 85 and age 90. I have other income to help fill the gaps.
Again, I refer you to #Cruncher and eyebonds.info. The ladder is reconstructed for you. The complexities that concern you are all dealt with.
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

When you use a TIPS bond ladder the bonds mature on a particularly date, unless all your spending occurs on that date that also has duration problems. In the ladder there are also the tricky problems of keeping real income constant across the years. So real income and nominal income in the first year is $15,000. But in year ten in might be nominal $16,125 is equal to real $15k in the first year - how do we account for that with bonds in only $1,000 maturity values. Moving the interest payments from the bonds in the ladder to the appropriate years is also a tricky business. Despite these problems a TIPS bond ladder constructed by following #Cruncher's spreadsheets will produce relatively safe retirement income, which is the goal.
viewtopic.php?f=10&t=240325

To each his own: there are tradeoffs either way. I prefer the simplicity of the duration-matching approach using TIPs bond funds.
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Re: Winning the game and investing in Fixed Income

Post by DetroitRick »

OP, I certainly think what you are suggesting is a reasonable alternative, especially if you are unconcerned with minor (to me at least) differences in long-term returns for this type of arrangement versus broader fixed income holdings.

Personally, I wouldn't do it because I would rather take more risk for more return by using a variety of fixed income instruments (under most credit spread environments). "Minor" though that return may be, usually. But that's just me. In my case, I find the individual shorter Treasuries, fairly short TIPs and intermediate bond funds combo to be a decent middle ground. The extra risk of different fixed income instruments in general will never keep me up at night or cause me financial ruin. Like the rest of my portfolio - diversification is the key for me.

So I both do what some of what you describe (shorter-term Treasuries and a few individual TIPS) AND maintain that broader exposure through funds. I have used brokered CD's when they made sense as well. But I would never ignore the unique environment we have been in with the Fed's bond buying programs etc. My response has been to avoid buying funds over the past year. That will change soon for me. I don't care about the market timing label. But no, I don't think I can precisely predict interest rates (and to prove I can't, I'm not a billionaire). So I keep fixed income diversified.

Whatever you decide is right for you, let me at least suggest that laddering Treasuries is neither complex nor time-consuming. I can't imagine where those ideas come from. Presuming first a basic bond understanding, and then having decided on your personal goals for fixed income, it just could not be simpler or quicker to execute this. Secondary market or non-competitive bids. There is no way that doing what I do costs me any significant extra time. Tax-wise, reporting is obviously a non-issue for Roth and IRA holdings, and has been simple enough for my taxable holdings. I've never been confused or surprised by my 1099's, although I don't have any TIPs in my taxable accounts (for many reasons, or many bond holdings in general there, for that matter).

Best of luck, whichever you decide.
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Re: Winning the game and investing in Fixed Income

Post by TheTimeLord »

bigskyguy wrote: Fri Jul 08, 2022 11:42 am
Fremdon Ferndock wrote: Fri Jul 08, 2022 11:12 am Well, TIPs ladders are trickier than they first appear.

For one thing, the real return from each TIP is based on the year of issue so you don't have a common scale when you're trying to figure out how much to buy at each maturity. For another, there is the matter of the interest payments along the way and what you do with those. The YTM is based on hypothetically re-investing those interest payments into the parent bond, which of course you won't be doing. Just having a ladder of equal dollar TIPs steps is not sufficient to produce a fixed inflation-adjusted target income per year over the period of the ladder.

These problems are more easily managed using a duration-matching TIPs bond fund strategy. Admittedly, this is not a "set it an forget it" approach because you have to continuously adjust the relative weights of the funds; perhaps every quarter or so. It's not a given that you'll be able to do that competently when you get into your late 80s. Therefore, it might make sense to target the duration of the duration-matching strategy to age 85 or so. In addition, a shorter TIPs ladder from, say, age 85 to life expectancy and/or I-Bonds can be purchased to extend the LMP income ladder beyond age 85 with assets that are less difficult to manage in your dotage. Or you could plan to purchase a SPIA at that point.

I decided to forego the idea of a year-by-year TIPs ladder and rely on I-Bonds and a 2-rung TIPs ladder with steps at age 85 and age 90. I have other income to help fill the gaps.
Again, I refer you to #Cruncher and eyebonds.info. The ladder is reconstructed for you. The complexities that concern you are all dealt with.
Wow, thanks found some awesome info that will help make my TIPS tracking much better. After all isn't the inflation-adjusted principal value what it is all about. 8-)
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Re: Winning the game and investing in Fixed Income

Post by CloseEnough »

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.

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.
Over the long-haul, I don't think your investments in Fixed Income as you've proposed, or some other reasonable allocation such as total bond index funds (US and International) together with a stable value fund, will make much of a difference. Perhaps you'll get some additional protection against an extended inflationary period. I view social security with COLA as providing much of that protection, and depending on what percentage of your expenses are covered, should be fine. All depends on to what extent you have "won the game".

I understand why you'd ask this question, and seems like there have been many similar inquiries lately on this forum. I'm sure the market and economic conditions over the past year are the reason for the spike in interest of how fixed income should be invested. And I think the recency bias shouldn't impact significantly how fixed income is invested. Although, as I said, I also don't see it as making a huge difference over a long time period.
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Re: Winning the game and investing in Fixed Income

Post by JoMoney »

TheTimeLord wrote: Thu Jul 07, 2022 10:54 am... 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.
Those look like great options for a fixed-income portfolio to me, but since you asked for reasons for something else:

SPIA's will offer higher income/withdrawal rate, and a guarantee of continuing to pay out if you live longer than a portfolio of bonds/CDs laddered out to draw down over your actuarial expected lifetime.

Some people may have no desire to spend principal, and generating a larger reliable income stream from long term bonds while only spending interest and leaving the principal for some future beneficiary to squander may appeal to them.

Over a lengthy period of time and market cycles, nominal bonds and TIPS should have similar expectations. While shorter term "unexpected inflation" may give TIPS an advantage in some period, the market and nominal interest rates should adjust, the market isn't offering a free lunch and there are reasons someone may prefer a predictable nominal return matched to a fixed liability rather than something that has a less predictable return in nominal terms.

Some people look at the "portfolio effect" of having various types of securities and will try to manage their portfolio as if they could predict how the pieces will interact. They try to manage volatility as if that was a worthy objective on its own, and looking at historical stock/bond relationships makes long-term treasuries appear to offer an extremely large portfolio benefit with regard to counterbalancing some of the extreme stock market moves.

Physical cash on hand "under the mattress" can be easily spent in a power or network outage. Coins might have collectible value if you enjoy collecting, as well as intrinsic material value. Silver has had a size/weight relative to value that's made it particularly suited for regular transaction exchanges.

During the multi-decade rise of interest rates from the mid 1940s to early 1980s, a portfolio of shorter term bonds and cash outperformed longer (even intermediate term) bonds.

Taking a very modest amount of credit risk in bonds, not junk, but investment grade minus the AAA+ securities, has offered something that looks like a "risk premium".

In recent years, MYGAs offered significantly higher interest rates than bonds or CDs. While the guaranty is not as solid as a federal government guaranty, the state insurance association guaranty has been solid provided one stays within their state limits.

Many retirement plans offer "Stable Value Funds" offering higher interest rates than short-term bonds while maintaining a "stable value".
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

The problem with nominal short term bonds, and nominals in general, for funding a long term retirement is their interest rate risk. Short term bonds must constantly be rolled over at maturity and for this reason, a portfolio of short term bonds is much more volatile than longer term bonds. While short bonds do a better job of keeping up with interest rate increases than longer term bonds, they are vulnerable to interest rate decreases.

The best bond strategy in retirement is a bond ladder or a duration-matching bond fund strategy. And the best bonds to own are TIPs and I-Bonds because they mitigate one of the most significant risks to retirement portfolios -- inflation. The research conducted by Dimensional, based on Merton's work, quantifies this. Their findings were :

(1) avoid high equity allocations because of sequence of returns risk
(2) use TIPs or I-Bonds because they protect against unexpected inflation, and
(3) use a duration-matching or ladder strategy to reduce income volatility.

Anyone who has been following this strategy is now finding out that the lab results seem to be valid.
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Re: Winning the game and investing in Fixed Income

Post by Atgard »

I find the problem with these "if you've won the game..." threads is that, depending on your exact definition of winning (30x expenses? 100x? 1,000x?), you can basically do just about anything you want and still be fine. You can go almost all stock and still have enough to survive even huge drawdowns. You can go pure fixed income, buy 3% treasuries (or some form of inflation-protected bonds) and just live off the 3% interest without touching principal. Etc. Etc.
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Re: Winning the game and investing in Fixed Income

Post by willthrill81 »

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.

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.
I've long advocated that the default position for all investors, not just those who believe they have 'won the game' (I really don't like that saying of Bernstein's), should be I bonds and TIPS as they are the most secure of all bonds and remove the biggest historic risk to fixed income (i.e., unexpected inflation).
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Re: Winning the game and investing in Fixed Income

Post by AlwaysLearningMore »

willthrill81 wrote: Sat Jul 09, 2022 10:52 am ...I've long advocated that the default position for all investors, not just those who believe they have 'won the game' (I really don't like that saying of Bernstein's), should be I bonds and TIPS as they are the most secure of all bonds and remove the biggest historic risk to fixed income (i.e., unexpected inflation).
+1
But it's a challenge to convince the next generation to make those a foundation of their investments when the siren song of equities (with updates broadcast daily on various and sundry media) are competing for their financial attention. A good TIPS rate doesn't have the shine of a hot stock/fund/ETF "tip" from their contemporaries.
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Re: Winning the game and investing in Fixed Income

Post by willthrill81 »

AlwaysLearningMore wrote: Sat Jul 09, 2022 11:32 am
willthrill81 wrote: Sat Jul 09, 2022 10:52 am ...I've long advocated that the default position for all investors, not just those who believe they have 'won the game' (I really don't like that saying of Bernstein's), should be I bonds and TIPS as they are the most secure of all bonds and remove the biggest historic risk to fixed income (i.e., unexpected inflation).
+1
But it's a challenge to convince the next generation to make those a foundation of their investments when the siren song of equities (with updates broadcast daily on various and sundry media) are competing for their financial attention. A good TIPS rate doesn't have the shine of a hot stock/fund/ETF "tip" from their contemporaries.
My statement was in regards to various fixed income options, not a comparison of stocks to fixed income. I'm more aggressive as an investor than most here, but I see little to no benefit from 'taking one's risk on the fixed income side'. Consequently, I shun TBM in favor of TIPS and I bonds.
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

willthrill81 wrote: Sat Jul 09, 2022 10:52 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.

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.
I've long advocated that the default position for all investors, not just those who believe they have 'won the game' (I really don't like that saying of Bernstein's), should be I bonds and TIPS as they are the most secure of all bonds and remove the biggest historic risk to fixed income (i.e., unexpected inflation).
Yes. Two of the greatest risks for retirement investors are (1) sequence of return risk and (2) inflation risk. The goal in retirement should be to minimize those two risks to one's investment portfolio returns. Some people just can't seem to get that at some point they ought to be trying to figure out how much is "enough" in retirement savings to provide a reasonably comfortable retirement and then favor a "wealth preservation" investment strategy for that portion of their assets. If you have more than "enough" then investing that into "wealth accumulation" strategies is an option; acknowledging that wealth accumulation (such as investing in stocks) entails significant risk of loss. The idea of investing for wealth accumulation in retirement always struck me as illogical unless you have sufficient assets that you don't really need to do that in the first place.
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Re: Winning the game and investing in Fixed Income

Post by willthrill81 »

Fremdon Ferndock wrote: Sat Jul 09, 2022 11:37 am
willthrill81 wrote: Sat Jul 09, 2022 10:52 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.

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.
I've long advocated that the default position for all investors, not just those who believe they have 'won the game' (I really don't like that saying of Bernstein's), should be I bonds and TIPS as they are the most secure of all bonds and remove the biggest historic risk to fixed income (i.e., unexpected inflation).
Yes. Two of the greatest risks for retirement investors are (1) sequence of return risk and (2) inflation risk. The goal in retirement should be to minimize those two risks to one's investment portfolio returns. Some people just can't seem to get that at some point they ought to be trying to figure out how much is "enough" in retirement savings to provide a reasonably comfortable retirement and then favor a "wealth preservation" investment strategy for that portion of their assets. If you have more than "enough" then investing that into "wealth accumulation" strategies is an option; acknowledging that wealth accumulation (such as investing in stocks) entails significant risk of loss. The idea of investing for wealth accumulation in retirement always struck me as illogical unless you have sufficient assets that you don't really need to do that in the first place.
To be fair, many here have far more than they are likely to ever need. As such, they are investing for those who will survive them, such as their heirs and charity.

But even during accumulation, I see no good reason to take on the risks of something like TBM over TIPS and I bonds, given a choice between them, which many do not have in employer-sponsored retirement accounts.
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Re: Winning the game and investing in Fixed Income

Post by dbr »

willthrill81 wrote: Sat Jul 09, 2022 11:40 am
To be fair, many here have far more than they are likely to ever need. As such, they are investing for those who will survive them, such as their heirs and charity.

But even during accumulation, I see no good reason to take on the risks of something like TBM over TIPS and I bonds, given a choice between them, which many do not have in employer-sponsored retirement accounts.
Yes, I can hold TIPS in my 401k because there is a brokerage link.
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willthrill81
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Re: Winning the game and investing in Fixed Income

Post by willthrill81 »

dbr wrote: Sat Jul 09, 2022 11:43 am
willthrill81 wrote: Sat Jul 09, 2022 11:40 am
To be fair, many here have far more than they are likely to ever need. As such, they are investing for those who will survive them, such as their heirs and charity.

But even during accumulation, I see no good reason to take on the risks of something like TBM over TIPS and I bonds, given a choice between them, which many do not have in employer-sponsored retirement accounts.
Yes, I can hold TIPS in my 401k because there is a brokerage link.
Fantastic. I don't believe that most have such an option though.
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Fremdon Ferndock
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

willthrill81 wrote: Sat Jul 09, 2022 11:44 am
dbr wrote: Sat Jul 09, 2022 11:43 am
willthrill81 wrote: Sat Jul 09, 2022 11:40 am
To be fair, many here have far more than they are likely to ever need. As such, they are investing for those who will survive them, such as their heirs and charity.

But even during accumulation, I see no good reason to take on the risks of something like TBM over TIPS and I bonds, given a choice between them, which many do not have in employer-sponsored retirement accounts.
Yes, I can hold TIPS in my 401k because there is a brokerage link.
Fantastic. I don't believe that most have such an option though.
There's always TIPs funds and ETFs if those are available in your 401(k) or 403(b). You can use those for duration-matching w/o needing to purchase individual TIPs. You can also use those outside tax-deferred accounts to invest in TIPs w/o messing with reporting the "phantom interest."
"Risk is what’s left over when you think you’ve thought of everything." ~ Morgan Housel
dbr
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Re: Winning the game and investing in Fixed Income

Post by dbr »

Fremdon Ferndock wrote: Sat Jul 09, 2022 11:52 am
willthrill81 wrote: Sat Jul 09, 2022 11:44 am
dbr wrote: Sat Jul 09, 2022 11:43 am
willthrill81 wrote: Sat Jul 09, 2022 11:40 am
To be fair, many here have far more than they are likely to ever need. As such, they are investing for those who will survive them, such as their heirs and charity.

But even during accumulation, I see no good reason to take on the risks of something like TBM over TIPS and I bonds, given a choice between them, which many do not have in employer-sponsored retirement accounts.
Yes, I can hold TIPS in my 401k because there is a brokerage link.
Fantastic. I don't believe that most have such an option though.
There's always TIPs funds and ETFs if those are available in your 401(k) or 403(b). You can use those for duration-matching w/o needing to purchase individual TIPs. You can also use those outside tax-deferred accounts to invest in TIPs w/o messing with reporting the "phantom interest."
I'm referring to TIPS funds that are not available in the 401k but are in the brokerage link. One of the striking deficiencies of many 401k plans is lack of a TIPS fund option. Not very many people really, really need individual TIPS.
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Re: Winning the game and investing in Fixed Income

Post by GAAP »

Fremdon Ferndock wrote: Sat Jul 09, 2022 11:37 amThe idea of investing for wealth accumulation in retirement always struck me as illogical unless you have sufficient assets that you don't really need to do that in the first place.
The idea that 30+ years of income that just matches inflation is sufficient has always struck me as illogical. Lifestyle improvements come with a cost that is in addition to regular inflation. If you retired 30 years ago and only kept up with inflation, you wouldn't be posting here because you wouldn't have either the computer or the internet connectivity, nor would you be calling anyone on a wireless phone.

Some degree of accumulation is necessary in my mind -- but nothing approaching the level needed prior to retirement.
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Fremdon Ferndock
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Re: Winning the game and investing in Fixed Income

Post by Fremdon Ferndock »

GAAP wrote: Sat Jul 09, 2022 12:07 pm
Fremdon Ferndock wrote: Sat Jul 09, 2022 11:37 amThe idea of investing for wealth accumulation in retirement always struck me as illogical unless you have sufficient assets that you don't really need to do that in the first place.
The idea that 30+ years of income that just matches inflation is sufficient has always struck me as illogical. Lifestyle improvements come with a cost that is in addition to regular inflation. If you retired 30 years ago and only kept up with inflation, you wouldn't be posting here because you wouldn't have either the computer or the internet connectivity, nor would you be calling anyone on a wireless phone.

Some degree of accumulation is necessary in my mind -- but nothing approaching the level needed prior to retirement.
I think retirement investors are fortunate that an investment now exists that is linked to inflation. That's a fairly recent development in the U.S. Back in the 1970s with raging inflation that would have been a nice thing to have. And it's a nice thing to have now too. I like the idea of a "safety-first" approach. Have at least the amount you have well thought-out that is needed to support your essential spending needs throughout retirement, in addition to income sources like social security and pensions. You might end up needing more than what you figured, but that's OK. You probably have an equal chance of croaking and needing a lot less. I always liked Jim Otar's advice: "People who need to invest in risky assets in order to retire are the same people who can least afford to do so." If you have the capacity and the desire, that's another matter.
"Risk is what’s left over when you think you’ve thought of everything." ~ Morgan Housel
pascalwager
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Re: Winning the game and investing in Fixed Income

Post by pascalwager »

I went from 90% to 60% stocks in a couple of steps over a few years: "taking some off the table". The 40% fixed-income is now an inflation-sensitive portfolio: TIPS and short-term investment-grade bonds.
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