Treasury Bills only in retirement
Treasury Bills only in retirement
If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
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Re: Treasury Bills only in retirement
There are no 30 year T Bills, however there are 30 year Treasury bonds.Wricha wrote:If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
My opinion, no - I'd hold 20% equity as my inflation hedge, SS is subject to legislative actions, equities are more reflective of true market conditions.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
- Artsdoctor
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Re: Treasury Bills only in retirement
A 30-year treasury bond is risky! You will be eaten alive with inflation.
There is no such thing as a risk-free investment. Ultimately, you'll have to decide how much and what type of risk you're comfortable with.
Artsdoctor
There is no such thing as a risk-free investment. Ultimately, you'll have to decide how much and what type of risk you're comfortable with.
Artsdoctor
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Re: Treasury Bills only in retirement
Yes, and that's why those who purchased 30 year treasuries in the early 1990's have been laughing all the way to the bank. Especially in a low or no inflationary enviornment. As you say, there is no such thing as a risk free investment. Past performance though is not indicative of future performance.Artsdoctor wrote:A 30-year treasury bond is risky! You will be eaten alive with inflation.
There is no such thing as a risk-free investment. Ultimately, you'll have to decide how much and what type of risk you're comfortable with.
Artsdoctor
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Treasury Bills only in retirement
Have you considered looking at inflation adjusted SPIAWricha wrote:If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
JOHN
Re: Treasury Bills only in retirement
John,
I was looking at the safest investment like in "your money or your life". I do not think i am going all treasuries but some times you just want to throw in the towel!!!
Thanks,
I was looking at the safest investment like in "your money or your life". I do not think i am going all treasuries but some times you just want to throw in the towel!!!
Thanks,
Re: Treasury Bills only in retirement
If you are going to do this, use long-term TIPS, not Treasuries; long-term bonds have a huge inflation risk, and your assumption is that you need more than the SS for your retirement spending. A large enough portfolio which is entirely in TIPS can be guaranteed to meet inflation-adjusted needs for 30 years. (Back when TIPS rates were higher, a TIPS ladder was actually a reasonable retirement strategy.)Wricha wrote:If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
Re: Treasury Bills only in retirement
If all was tax deferred and free I would agree. Let's say that some or much of the OP's portfolio is taxable. In that case, a 100% TIPS investment is guaranteed to lag inflation by the tax bracket, right?.grabiner wrote:If you are going to do this, use long-term TIPS, not Treasuries; long-term bonds have a huge inflation risk, and your assumption is that you need more than the SS for your retirement spending. A large enough portfolio which is entirely in TIPS can be guaranteed to meet inflation-adjusted needs for 30 years. (Back when TIPS rates were higher, a TIPS ladder was actually a reasonable retirement strategy.)Wricha wrote:If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
Re: Treasury Bills only in retirement
Correct. In a 25% tax bracket, a TIPS with a 1% yield is guaranteed to earn 0.75% more than 75% of the inflation rate; to get the full inflation protection, you need almost 33% more TIPS than you would need in a tax-free account. (It's not a full 33% because you don't pay tax on the return of your principal at maturity.)Calm Man wrote:If all was tax deferred and free I would agree. Let's say that some or much of the OP's portfolio is taxable. In that case, a 100% TIPS investment is guaranteed to lag inflation by the tax bracket, right?.grabiner wrote:If you are going to do this, use long-term TIPS, not Treasuries; long-term bonds have a huge inflation risk, and your assumption is that you need more than the SS for your retirement spending. A large enough portfolio which is entirely in TIPS can be guaranteed to meet inflation-adjusted needs for 30 years. (Back when TIPS rates were higher, a TIPS ladder was actually a reasonable retirement strategy.)Wricha wrote:If you could live off 3% withdraw from savings and use SS as your hedge against inflation would you go all in with 30 year treasury bills? Not taking more risk than is necessary thinking.
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Re: Treasury Bills only in retirement
Mainly because inflation and yields crashed since then. Unless we go deep into deflation, we're not seeing anything like that going forward. Buying long-term Treasuries now is much more likely to work out poorly than well, I'd say.Grt2bOutdoors wrote:Yes, and that's why those who purchased 30 year treasuries in the early 1990's have been laughing all the way to the bank. Especially in a low or no inflationary enviornment.Artsdoctor wrote:A 30-year treasury bond is risky! You will be eaten alive with inflation.
There is no such thing as a risk-free investment. Ultimately, you'll have to decide how much and what type of risk you're comfortable with.
Brian
Re: Treasury Bills only in retirement
Thanks folks helpful responses
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Re: Treasury Bills only in retirement
Quite true. I was merely trying to imply that the use of the word "risky" needs to be viewed in the context of total returns, guarantees and investments that lack a guarantee. A T-Bond is guaranteed, a CD is insured up to a limit, an equity has no guaranty, commodities offer no guaranty. Owning a small portion of anything in and of itself is usually not overly risky, owning too much of anything is very risky.Default User BR wrote:Mainly because inflation and yields crashed since then. Unless we go deep into deflation, we're not seeing anything like that going forward. Buying long-term Treasuries now is much more likely to work out poorly than well, I'd say.Grt2bOutdoors wrote:Yes, and that's why those who purchased 30 year treasuries in the early 1990's have been laughing all the way to the bank. Especially in a low or no inflationary enviornment.Artsdoctor wrote:A 30-year treasury bond is risky! You will be eaten alive with inflation.
There is no such thing as a risk-free investment. Ultimately, you'll have to decide how much and what type of risk you're comfortable with.
Brian
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Treasury Bills only in retirement
If you're just worried about inflation, 5 year Treasury bills are a good bet. They tend to follow interest rates, which tend to follow inflation.
Of course, their real return is about zero.
The problem with any longer term bond is that it represents the market's best guess as to inflation going forward, and the market doesn't always get it right. As has been pointed out, it over estimated inflation in the 1990s.
Of course, their real return is about zero.
The problem with any longer term bond is that it represents the market's best guess as to inflation going forward, and the market doesn't always get it right. As has been pointed out, it over estimated inflation in the 1990s.
- Artsdoctor
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Re: Treasury Bills only in retirement
Grt2bOutdoors,
I'm not sure anyone who purchased a 30-year treasury bond in 1990 is laughing all the way to the bank. I can't give you a chart with specifics because of time constraints but a quick perusal of the historical CPI-U suggests that a hypothetical $100,000 30-year bond purchased January 1, 1990 would have had a coupon of about 9%, but that that $100,000 in 1990 would need to be equivalent to $187,500 in today's dollars to give you the purchasing power it did when purchased in 1990. And those annual dividends of $9,000 then would have the purchasing power of about $4,800 now. Of course, if you would have taken all of those dividends and invested in a total stock fund, you might be smiling indeed.
Just because the principle is guaranteed doesn't mean you haven't lost money. At the end of the day, money is used to purchase things. Those "things" have prices that inevitably increase over time.
Artsdoc
I'm not sure anyone who purchased a 30-year treasury bond in 1990 is laughing all the way to the bank. I can't give you a chart with specifics because of time constraints but a quick perusal of the historical CPI-U suggests that a hypothetical $100,000 30-year bond purchased January 1, 1990 would have had a coupon of about 9%, but that that $100,000 in 1990 would need to be equivalent to $187,500 in today's dollars to give you the purchasing power it did when purchased in 1990. And those annual dividends of $9,000 then would have the purchasing power of about $4,800 now. Of course, if you would have taken all of those dividends and invested in a total stock fund, you might be smiling indeed.
Just because the principle is guaranteed doesn't mean you haven't lost money. At the end of the day, money is used to purchase things. Those "things" have prices that inevitably increase over time.
Artsdoc
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Re: Treasury Bills only in retirement
I don't disagree. Again, a portfolio should be viewed as being designed to meet one's needs. If the portfolio value is large enough to adequately support retirement, then the purchasing power reduction part is mute. If the portfolio returned say 90,000 in income and needs were only 1/2 that amount, the remainder could be reinvested generating even more cashflow. This is nearly never the case, most people do not have such a large portfolio and are forced to venture into other asset classes. Unlike a lottery winner with $50 million in the bank and a yearly need of $100K, they could leave it in cash or t-bills, the portfolio will outlast the person.Artsdoctor wrote:Grt2bOutdoors,
I'm not sure anyone who purchased a 30-year treasury bond in 1990 is laughing all the way to the bank. I can't give you a chart with specifics because of time constraints but a quick perusal of the historical CPI-U suggests that a hypothetical $100,000 30-year bond purchased January 1, 1990 would have had a coupon of about 9%, but that that $100,000 in 1990 would need to be equivalent to $187,500 in today's dollars to give you the purchasing power it did when purchased in 1990. And those annual dividends of $9,000 then would have the purchasing power of about $4,800 now. Of course, if you would have taken all of those dividends and invested in a total stock fund, you might be smiling indeed.
Just because the principle is guaranteed doesn't mean you haven't lost money. At the end of the day, money is used to purchase things. Those "things" have prices that inevitably increase over time.
Artsdoc
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions