Bogleheads.org

Bond diversification using inflation-adjusted returns By contrast, data on TIPS, the actual security, span less than 25 years, most of it following the collapse of the dotcom boom and the great disinflation post-2009. I consider that too short a period to be useful for generating even an idealized profile of risk-return; more especially given the novelty factor, which in the first few years of TIPS’ existence, drove real yields to levels never seen since (I mean, 4%? Really?). Therefore, no TIPS security will be modeled.* I know that some (myself included) use TIPS within the bond portion of the portfolio. Would it be reasonable to suppose that TIPS durations would correspond similarly to nominal durations illustrated in this thread in the...

There may be some people for which this is true. In my case, I don't have room for TIPS in the sheltered part of my portfolio and I don't know when I will retire. I-Bonds provide automatic duration matching and extra tax sheltered space. The ability to gift years in advance allows a married couple generate at least 100k of additional tax sheltered space in a single year. After 5 years, or after 1 year with 3 months interest risk the funds are inflation protected and duration matched. TIPS funds can't duration match or provide additional sheltered space. This extra space in I-Bonds increases my ability to Roth-convert or lower taxes in the future. This is with a large sheltered portfolio. I am duration-matching with TIPS funds in tax-shelte...

But Bernstein says that not everybody should buy I-Bonds, specifically: There’s actually only one kind of person who really shouldn’t be buying I bonds, and that’s the person with a large amount of assets in the sheltered part of their portfolio. In that case, the I-Bond purchase limit means the purchases have no meaningful effect on the total allocation, and TIPS would serve the same purpose. For those who have been purchasing I bonds for many years, it has been possible to accumulate a meaningful amount. This does not preclude having large amounts in tax advantaged accounts. (While the fixed income sleeve in the tax advantage accounts maybe much larger, the I bond balance can still be meaningful.) One can also choose to look at the I bon...

Fremdon Ferndock wrote: ↑Fri Mar 31, 2023 10:25 am But Bernstein says that not everybody should buy I-Bonds, specifically:

There’s actually only one kind of person who really shouldn’t be buying I bonds, and that’s the person with a large amount of assets in the sheltered part of their portfolio.

In that case, the I-Bond purchase limit means the purchases have no meaningful effect on the total allocation, and TIPS would serve the same purpose.

I would use a PC-based program, not anything online that can be hacked -- there's way too much personal information in a tax return to store it online without encryption that I personally control and the storage provider can't access.

My preference is TurboTax, but I've been using it since the days of MSDOS and printing out the numbers for manual entry on the forms.

Analysis based upon a tax bracket schedule that changes again under current law in a few years. It also assumes that the current regime remains the same for the life of the account -- prior history indicates otherwise.

The 401(k) allowed me to save a lot without missing the money -- enough to retire early. Any potential tax benefit is situational, but having the money to retire requires saving a lot for a long time. That is the true value of the 401(k).

Behavioral reasons are the best argument that I've seen. If you were worried that market fluctuations might affect your ability to buy and hold, then end-of-day NAV based pricing might keep the MF holder from trying to trade as much -- but that's a bit of stretch. Somehow, I don't see that mattering much to a panicking investor.

I'm not too clear on what you're asking, so this may or may not be useful. I track annual expenses. I have a "budget" that is more of an estimate. The budgeted amounts for future months are combined with the actual amounts to-date to create an annual forecast. The forecast just lets me know if things are getting out of whack (i.e., I need to be more conscious of spending). Any estimate for the future that I use is in real terms, so I adjust prior-year nominal spending by the prior-year inflation amount to create the next annual estimate. Obviously, known other expenses like Roth conversion taxes, special travel events, major home repairs, etc. are also inputs to the estimate. Some items like property taxes are known in advance, so...

Academic paper, free download at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3628120 Alejandro Lopez-Lira and Nikolai Roussanov First version: May 2020; This version: February 2023 Abstract We document challenges to the notion of a trade-off between systematic risk and expected returns when analyzing stock characteristics’ empirical ability to predict excess returns. First, we measure individual stocks’ dynamic exposures to all common latent factors using efficient high-dimensional methods. These factors explain virtually all of the common time-series variation in stock returns. However, exposure to these latent factors appears to earn negligible risk premia. Next, we construct out-of-sample forecasts of stock returns based on a wi...

Vineviz, I believe I understand your premise re. matching bond fund duration to “Target” . But, I am having difficulty fully understanding where I fall on this Target spectrum: is it retirement date, life expectancy, or …. Specifically, I am 79, wife is 75. We are retired. We have no need to leave funds for children. We get by on other income and our retirement fund is spent as special needs/wants occur (home renovation, travel, etc.) I am currently at a 35% equity (VTSAX and VTIAX), 65% bond (all VBTLX). Sufficient cash (~18months need) is not included in the allocation. I am keenly aware of interest rate risk and need to determine a better bond duration than the current all intermediate term VBTLX. Can someone clarify for me a better bon...

GnuCash for a long time. I used to use Quicken, but unlike Quicketn, GnuCash is dual entry accounting. It is not possible to create an unbalanced transaction in GnuCash, but it was (is?) easy in Quicken. That lead to multiple errors. Combine that with upgrade cost differences, and GnuCash won out pretty easily.

Only generalities with my own kids, but my spouse is also healthy. My mom shared more with me once I was in my 40's, but she was also widowed.

I think it depends upon your individual situation, and the ability of your children to understand that situation and not make irrational decisions based upon the current status of your finances.

What if you stuff $100M into your safe, alongside $100M worth of gold, and drop the remainder $100M into a stock index accumulation fund. Spend that safe money first, perhaps dollars and then gold as dollars are more inclined to deflate. Some years later, the safe is empty, and as you spend the last dollar or gold coin you're at 100% stock, having started at thirds each stock/cash/gold. Fiddly to measure, but a reasonable alternative is to assume the time weighted average, 67/17/17 stock/cash/gold and measure that. Now instead of hard US dollar bills in the safe, those dollars might be deposited with the treasury, T-Bills, that are fully protected no matter how much you deposit, and in effect pay interest that goes some way to offset other...

My general interpretation of the expression (that I don't particularly like, BTW) is that you would de-risk your portfolio. Generally, "risk" here is interpreted as price volatility and the related portfolio value volatility. Since the concern came up in a TIPS thread, I would guess that you also have an inflation risk concern. My first attempt at the problem would be to identify and prioritize the risks you care about. The prior suggestion to use VTMFX is one way to achieve reasonable protection against inflation with a small amount of real growth. If that is all you care about, it may be a good fit. I use it to provide specific funds for estate settlement. As a rough number, expenses are less than 3% of portfolio value, so it's ...

The risk of dealing with Treasury Direct depends on your primary heirs. If your heir is a spouse who is not interested in investing and who ages along with you, TD may in fact be overwhelming. If your heirs are your children who are both younger and technically astute, using the TD should be fine. Victoria I'm not using TD, but my general death-of-me approach has three parts. First, simplify as much as possible, but no more than is optimal. Second, explain/educate with an IPS that describes a lot more about why things are done, and even some of the theory behind it (e.g. interest-rate risk). Education also includes walking through my planning spreadsheet (reorganized now for easier understanding). Third, identify a fee-only CFP near where ...

It depends on the account for me as I maintain an annual cashflow and tax plan. Vanguard income distributions for municipals happen every month, STAR dividends are semi-annual. Of course, these are at no charge to me. My 401k custodian charges $40 per withdrawal, so that one I only perform annually, if I even make one. I can make exchanges within the 401k at no charge, so I pre-stage the distribution over time to a stable value fund ahead of the distribution. No way am I paying $480 a year for monthly distributions. Purely curiosity here -- is there something special enough about that 401(k) that you don't want to rollover to an IRA? If you're over 59-1/2, I have trouble understanding why you wouldn't just get something cheaper to manage.

dkturner wrote: ↑Mon Mar 27, 2023 7:10 am Don’t have to make estimated quarterly federal income tax payments. We can have all of our federal income tax liability paid in December. In some states you can do this with state income taxes as well. More money working for us for a longer time.

You could also withdraw in December and make the 4th-quarter estimated payment the following January for a few more weeks of interest.

What if you stuff $100M into your safe, alongside $100M worth of gold, and drop the remainder $100M into a stock index accumulation fund. Spend that safe money first, perhaps dollars and then gold as dollars are more inclined to deflate. Some years later, the safe is empty, and as you spend the last dollar or gold coin you're at 100% stock, having started at thirds each stock/cash/gold. Fiddly to measure, but a reasonable alternative is to assume the time weighted average, 67/17/17 stock/cash/gold and measure that. Now instead of hard US dollar bills in the safe, those dollars might be deposited with the treasury, T-Bills, that are fully protected no matter how much you deposit, and in effect pay interest that goes some way to offset other...

Gold is surprisingly compact. A one-kilo bar, at today’s price of $2000/troy ounce, is worth about $60,000, but measures only about 3.5“ X 1.5” X 0.75 inches. Seventeen of these would be worth $1 million and fit into the average hand bag. Unfortunately, the straps of the bag would probably break, if not your arm, given the forty pounds that $1 million of gold would weigh. If you've got that much money, you're buying quality luggage that won't have any trouble with 40 lbs. :wink: Now you are at the ranch with an armed retinue. It’s off a side road off a side road: defensible space. You don’t go shopping yourself like poor Peter—you send an armed group of men into town in two vehicles. They are buying provisions for you and for their familie...

The generally accepted measure of economic standard of living is Real Per-Capita GDP -- which by definition exceeds inflation growth. An extended retirement period that is planned around only real income parity (e.g., the classic SWR methods) will also not keep up with standard of living. The laptop, tablet, and smartphone you mentioned are all new technologies that have arisen well within the typical 30-year retirement period assumption. To keep up with standard of living growth, you must either reduce the amount you spend to start, or find a way to fund growth that exceeds inflation. IOW, save more up-front using a lower withdrawal rate, or manage the portfolio for some growth. BTW, this observation is NOT POPULAR here. If real per-capit...

...The laptop, tablet, and smartphone you mentioned are all new technologies that have arisen well within the typical 30-year retirement period assumption. These things aren't particularly expensive, and in inflation-adjusted terms are only getting cheaper. My first personal computer, a fairly basic model for the time, in 1990 cost $2000. My second personal computer, vastly more powerful than the first, also cost $2000 - bought in the year 2000. My latest laptop, a top-of-the-line model bought in 2018, cost around $1700. Adjust for inflation, the dollar-price has been plummeting. The same holds for nearly all manufactured goods or commoditized services, such as airline tickets. One of the oft-stated expenses in retirement is travel. Well, ...

If you look at the amounts that are recommended for saving today vs 1955, it usually accounts for that age difference. 40% more is just over $1 million. I see $1.5 million in many articles, but that could also account for higher expectations today vs 1955 in terms of living standards, amenities, travel, etc. If women were saving 12% in the 1950s, then today's 40% higher saving rate is 17%. That isn't going to happen for most people. Most people today will either have to work longer, or accept a lower standard of living in retirement than they became accustomed to in the years leading up to retirement. If you are going to spend 33% more years in retirement, but work the same number of years, you have to save at a much higher rate. Or altern...

Fascinating to look back. One thing I've been thinking about recently is how there is much more stuff to buy these days. I often think, well it just must be that the 50s had things to buy and I don't know about it. But I doubt it because the stuff to buy is all tech. accelerating at a dizzying rate making itself obselete every few years. The standard of living has gone up dramatically, and while most things are cheaper, there are just way many more of them. Retiring today you're going to end up with a laptop, tablet and smartphone. The tablet and smartphone need replacing every 3-4 years (due to security support ending), the laptop probably every 5 years. Life expectancy was pretty good in 1955, and if you were 65 then you'd life to 85 let...

Do it soon -- you're running out of time.

A major difference between now and then would be from ERISA in 1974. That provided much tougher funding requirements for pensions that made them much more likely to survive during retirement. OTOH, it also added minimum age requirements for vesting. This improves funding, but it cost my dad his pension -- he died too young after being vested in pre-ERISA pensions.

ERISA changes are likely one reason pension participation has declined, but those remaining pensions are likely to survive (says the guy with a tiny nominal pension owned by PBGC).

That's the paragraph I've sort of zoned in on as well. As a soon to be retiree I 100% agree with "...they're an excellent, though still imperfect, supplement to Social Security". That's exactly how I'm using my duration matched TIPS and, eventually, Ibonds. And, yep, my TIPS and Ibonds are "mentally separate". In reality, not just "mentally separate" but actually separate as I do not rebalance between them and the stock portion of my portfolio. Cheers For a Bernstein TIPS LMP this seems to be completely rational as logically that use of TIPS is an income stream and not an asset at all. Anyway trying to rebalance such a thing is impractical. I myself don't have an LMP structure and just own a TIPS fund as an as...

The common strategy is to view Social Security as a source of income or reduction of portfolio withdrawals needed. I can see the train of thought to apply this to TIPS as well. But the trouble is how do you actually implement this? How do you account for the TIPS in the portfolio when analyzing how much portfolio withdrawal you need? If you are building a ladder, when do you start the ladder and when do you stop adding rungs and only withdraw? Assuming positive inflation over time, should you be adding larger and larger nominal dollars of TIPS each year to support a similar purchasing power each year when withdrawing? The answers depend upon what you want to achieve with TIPS. If you are using TIPS as a source of income, then you need to d...

I'm trying to wrap my head around this one. The research and calculators I have looked at haven't directly addressed this one. Take last year for example, if you withdrew your money in March 2020, then you'd be in a far different place than if you withdrew your money December 2020. A monthly withdraw approach for 2020 would probably have saved you a lot of stress. Of course, withdrawing while the market was tanking was probably stressful too. The research doesn't mean much, because the math is simple: you want to leave as much money invested as possible. Any discrepancies you might witness are just timing noise. Okay, let me add more layer of complicity. If you have 75% stocks and 25% bonds, do you withdraw to maintain that balance or do y...

Marseille07 wrote: ↑Mon Apr 05, 2021 10:01 am

Sandtrap wrote: ↑Mon Apr 05, 2021 9:22 am

cheese_breath wrote: ↑Thu Apr 01, 2021 10:09 pm Withdraw when / if I need it.

+1
As needed.
j

How do you make sure you don't overspend? The last thing you want is to find out you actually withdrew 10% on the year without knowing.

Withdrawing is a separate act from budgeting. You can create a budget with an annual target, and then manage to the target.

cheese_breath wrote: ↑Thu Apr 01, 2021 10:09 pm Withdraw when / if I need it.

Me too. I just treat it as cash-flow management. Taking money entirely out of the portfolio before it's needed doesn't make sense to me -- especially if it is in a tax-advantaged account.

VictoriaF wrote: ↑Thu Mar 23, 2023 1:48 pm

David Althaus wrote: ↑Thu Mar 23, 2023 1:45 pm 1. Would equivalent 30-year treasury arbitrage away the advantage of the 30-year TIP if each held to maturity?

30-year Treasuries held to maturity don't protect you from the inflation risk.

Victoria

And if inflation risk isn't the only risk you want to consider?

Before making any recommendations, make sure you understand his definition of "safe". It could very well mean FDIC insurance, for example. Remember, it's his money, his definition of "safe", and his choice in the end. He needs to clearly understand the risks and potentials of any option first, so he doesn't get an unpleasant surprise later (and blame you).

To create an inherited IRA for you requires that the IRA be associated with your SSN. That requires an account that they transfer into. After the Inherited IRA is created and funded, you can move the funds wherever you wish.

The same would be true at Vanguard or any other firm.

seajay wrote: ↑Thu Mar 23, 2023 3:01 am You can deposit as much as you like into T-Bills with them pretty much being totally guaranteed, physical gold in-hand totally eliminates counter-party risk, but has its own risks such as security of storage. Stock/Bond (T-Bill)/Commodity equal exposure diversity - such if concerns were increasing as to brokerages, concentration of wealth via a single counter-party, then the diversity of also holding T-Bills and gold might be more comfortable ...etc.

Don't forget, governments can also make owing gold illegal -- we did here for 40 years.

NoRegret wrote: ↑Thu Mar 23, 2023 1:36 am *Most non-gold-bug economist think the gold-standard is deflationary and fiat allows faster real growth. I believe that to be true to a certain extent, but human folly makes it far too easy to over do fiat just a tiny bit.

It's a theory and I have no way of proving it. My main point is that while it's tautological that gold's real return is 0 under a gold standard; in a fiat regime we need to think things thru.

Not proof -- but illustrative:

H-Town wrote: ↑Wed Mar 22, 2023 10:35 pm As long as you don't have everything in long term treasuries, like SVB did. Not even hedging to protect.

SVB will become the textbook illustration for interest rate risk.

money is fungible. buckets are arbitrary. cash earning 4% is still losing against inflation. ibonds are paying 6.89%. But are Investments fungible? maybe not per the definition of the word, which is "replaceable with another *identical* item". but when pretty much any investment/possession can be traded for money, in practice it's fungible enough, no? even super illiquid assets like your home can be made liquid very easily with things like a HELOC. Can you get a HELOC if you are unemployed or underwater because the value of your home has declined, think 2008? While treasuries bought in 2019 could be made liquid in 2022 it was likely to be a very painful thing. This is the reason things like investment time horizon and duration ma...

Nahtanoj wrote: ↑Wed Mar 22, 2023 4:52 pm One emergency to consider is the death of a spouse. The survivor will need cash, and the deceased’s earned income will stop. And there may be a time lag before the survivor can access retirement accounts and any remaining life insurance. Cash in a jointly-titled bank or brokerage account could be available to the survivor right away. Thinking about this myself recently, in the context of estate planning.

Very recent thing for me too, in the same context.

Mortality can be unexpected, so that potential need always exists. Someone planning surgery should certainly consider the possibility of a bad (fatal) outcome -- even if they are young and healthy.

Yes, retirement spending is important. Inflation is a risk that needs to be managed. Liability matching is a valid tool. However, is liability matching the correct tool for this situation? And maybe it is. But if you shove a chosen method into the goals section of your IPS you are putting on mental blinders. You seem to be assuming that I haven't identified the amounts necessary for the liability matching. They are easy to compute: deferred SS for two people at specific years, extra taxes for Roth conversions that are planned to the dollar, purchase of a known amount of annuities at a particular age. Yes, I've done that. Yes, they are all known real amounts with a specific timeline. No, this isn't a very big part of my portfolio. No, I'm n...

The first requirement I would have for a store of value is that it reliably stores that value, which tends to mean it is not volatile. Gold doesn't qualify. The second requirement I would have is that it is a reliable real store of value, not nominal. Gold doesn't qualify here either. What, in your opinion, meets the above criteria? For low volatility, cash. Adding some inflation protection, TIPS (ideally duration-matched) in the USA. Gold is far more volatile than either cash or short-term TIPS, and so less reliably stores value in the short-term. I wouldn't normally have use for long-term value storage, although I do have use cases that require future specific amounts at specific points in time -- for that, TIPS make more sense to me.

I often hear having an Emergency Fund discussed here and I maintained one my entire working career but now that I am "retired" I didn't think I had one anymore. Then I started thinking about some of the assets I was holding and it seems like a distinction without a difference. So is an emergency fund just an acceptable mental accounting device to allow you to group or allocate short term accessible liquid assets or is it something else? So please tell me what counts as an emergency fund and is a rose by any other name just as sweet? Most people who have more than a few years of living expenses invested dont really need an emergency fund. Or put another way, my entire portfolio is my emergency fund and backstop. I don’t have a spe...

The wiki is about simple rules, heuristics, and being risk adverse. I am not. It is important for you to develop your knowledge to know who you are. Absolutely agree here. In my case, I have to be able to explain the choices/decisions to someone who thinks in an entirely different manner, has an entirely different relationship with risk (lived in Brazil with hyperinflation), and an entirely different understanding of investing in general. Liability matching is a highly risk adverse portfolio construction technique. For example, when I worked in life insurance we used liability matching because if we could not pay out then the business was dead. Very high downside. But risk and return are linked. Absolutely agree here also -- I'm not a fan ...

I would start by recasting your goals. Note, I have had formal training in this area. I have had to work at a high level coding systems. This is not a criticism of anything you have written. Rather a rewriting so we actually cast this into some formal logical. You're making a lot of assumptions with just this paragraph. In any case, this is the high-level description of portfolio functions, not all of the details. I'm certainly not going to answer in detail about any of this. Start by striking the liability matching. That is not a goal, that is a portfolio building technique. Maybe it turns out that liability matching is the best option for you but don't put the cart in front of the horse. How else would you describe a "goal" to ...

I agree -- but many of the arguments for owning physical gold are pretty close to that. The sort of situation where that occurs locally (Wiemar Republic, Brazilian Hyperinflation, etc.) tend to mean that your best option is to go somewhere else -- thus the requirement to transport that value store. The first requirement I would have for a store of value is that it reliably stores that value, which tends to mean it is not volatile. Gold doesn't qualify. The second requirement I would have is that it is a reliable real store of value, not nominal. Gold doesn't qualify here either. I don't think there is a transport issue if you're a 21st Turkish citizen who is buying gold ETFs. Perhaps not -- but the same argument could be made for any ETF, ...

Gold as fire insurance? No, at best it sounds more like earthquake insurance (10% deductible on the total policy). I do buy earthquake insurance, and I did buy flood insurance in the 500-year flood plain, not just the 100-year flood plain that FEMA recommends. I don't hold gold except for the ring I'm wearing. Gold as a store of value? Yes, but in those doomsday scenarios you need to have physical gold, a way to protect it, a way to transport it to a better/safer location, and someone willing to accept it as payment. I'm more likely to accept food than gold in that sort of situation. Gold arguably provided a better return when currencies were linked to it precisely because that linkage led to deflationary events that improved gold returns....

TheTimeLord wrote: ↑Tue Mar 21, 2023 2:53 pm I think there is definitely a Need, Willingness and Ability aspect to the responses.

The amount of available financial resources will certainly drive an individual's choices, as will their personal comfort with volatility risk, inflation risk, etc. It takes more money to defer defined benefits, for example. HCOL vs LCOL locations certainly matter. The degree and quality of any retirement benefits from an employer or union would matter.

I doubt that there's one true answer to question -- but understanding the responses can help you make your own choices.

Gold as fire insurance? No, at best it sounds more like earthquake insurance (10% deductible on the total policy). I do buy earthquake insurance, and I did buy flood insurance in the 500-year flood plain, not just the 100-year flood plain that FEMA recommends. I don't hold gold except for the ring I'm wearing. Gold as a store of value? Yes, but in those doomsday scenarios you need to have physical gold, a way to protect it, a way to transport it to a better/safer location, and someone willing to accept it as payment. I'm more likely to accept food than gold in that sort of situation. Gold arguably provided a better return when currencies were linked to it precisely because that linkage led to deflationary events that improved gold returns....

That's basically another way of saying that people should account for all of their expenses. My concern is with the people that dip into their emergency fund for deductibles while they are employed. If they need the emergency fund in that situation, the deductible is too high. If they can't afford a lower deductible, then they can't afford the item that they are insuring, or they are spending money elsewhere that they can't afford to spend. An insurance deductible is an implicit acknowledgement of self-insurance -- which only works if you have the money to self-insure. Oh I meant to discuss the insurance premiums being counted toward your living expense calculations. My rule of thumb is to include in living expenses anything recurring with...

I tend to view it as liquidity. Maybe 9 months expenses in bank cash and another couple of years worth in ibonds. I don’t view it as irrational to have a fixed stack of cash or cash equivalents. Some will say “mental accounting”, but that presumes an individuals risk aversion curve will always dictate the same asset allocation whether one has $100,000 or $1 million. By setting a hard minimum, via a fixed emergency/liquidity fund when the value of your portfolio goes down, your stock allocation will decrease if looking at entire net worth. That isn’t optimal for long term growth but it does provide a safety cushion. It is very plausible for a 60 year old to have a risk aversion based optimal asset allocation of 0/100 at $100k, 50/50 at 1 mi...

The biggest emergency when employed is loss of employment and the related income stream. That clearly needs some form of financial backstop. Most of the stuff people put in the "emergency" category aren't emergencies. Any normal form of insurance deductible is not an emergency -- you know in advance that you might have to pay it. The same can be said for normal wear-and-tear on vehicles, homes, appliances, etc. In retirement, those apply even less. However, I do set aside money for: Financial Reserves provide funding for unexpected large expenses that generally don’t occur, yet have the potential for significant financial impact. Examples include major home repairs, large medical expenses, earthquake insurance deductible. The key...