All Bonds in TIPS

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Blueskies60
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All Bonds in TIPS

Post by Blueskies60 »

Are there any Bogleheads who have all their bonds held in TIPS? I currently hold Vanguard Total Bond (BND) and Pimco 15+ Year US TIPS Treasury ETF at 50/50.

I'm thinking of the following options to mitigate inflationary effects on bonds in my porftolio ~

1. Moving all BND to an Intermediate US TIPS Treasury ETF like Pimco's TIPZ or or SPDR 1-10 year fund TIPX
2. Moving all BND to Fidelity Inflation Protected Index Mutual Fund, FIPDX

I'm thinking about making this move out of concern for possible/impending inflation. Thanks for your thoughts!
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vineviz
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Re: All Bonds in TIPS

Post by vineviz »

My thoughts:

1) Any move an investor makes due to worries/fears about a predicted market move is more likely to be a bad idea than a good idea.

2) Nothing at all wrong with a portfolio which exclusively uses TIPS for the bond allocation.

3) Most investors can weather higher inflation just fine without exclusively using TIPS for the bond allocation.

4) The general rule of thumb is that the more you have in bonds the bigger the portion of bonds that should be in TIPS, and the more you rely on your portfolio for basic living expenses (as opposed to Social Security) the bigger the portion of bonds that should be in TIPS.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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watchnerd
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Re: All Bonds in TIPS

Post by watchnerd »

Blueskies60 wrote: Tue May 04, 2021 10:08 am Are there any Bogleheads who have all their bonds held in TIPS? I currently hold Vanguard Total Bond (BND) and Pimco 15+ Year US TIPS Treasury ETF at 50/50.

I'm thinking of the following options to mitigate inflationary effects on bonds in my porftolio ~

1. Moving all BND to an Intermediate US TIPS Treasury ETF like Pimco's TIPZ or or SPDR 1-10 year fund TIPX
2. Moving all BND to Fidelity Inflation Protected Index Mutual Fund, FIPDX

I'm thinking about making this move out of concern for possible/impending inflation. Thanks for your thoughts!
I don't have all my bonds in TIPS, but I have a lot.

To vineviz's point about living off of bonds, my LMP ladder that will cover my everyday living expenses from age 55 to age 67 is 50% TIPS.

My risk portfolio, is just bonds by market weight.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
bigskyguy
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Re: All Bonds in TIPS

Post by bigskyguy »

Our retirement allocation:
60% TIPS ladder (2021-2044)
5% I-bonds
3% Schwab Short Term US Treasury Fund (SCHO) - in lieu of a money market fund
10% Vanguard Life Strategy Growth Fund (VASGX)
20% Vanguard Total World Stock ETF (VT)
2% Dimensional Global Equity Fund (our HSA)

We have chosen to take all of our risk on the equity side, and to immunize against both inflation and interest rate risk with our bond portfolio.

We are retired, ages 71 and 62,
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watchnerd
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Re: All Bonds in TIPS

Post by watchnerd »

bigskyguy wrote: Tue May 04, 2021 10:42 am
10% Vanguard Life Strategy Growth Fund (VASGX)

We have chosen to take all of our risk on the equity side,
Not to be pedantic, but if you're holding some VASGX, that isn't quite true.

It holds total bond indexes, which include corporates, high yield junk, etc.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
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vineviz
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Re: All Bonds in TIPS

Post by vineviz »

watchnerd wrote: Tue May 04, 2021 10:49 am
bigskyguy wrote: Tue May 04, 2021 10:42 am
10% Vanguard Life Strategy Growth Fund (VASGX)

We have chosen to take all of our risk on the equity side,
Not to be pedantic, but if you're holding some VASGX, that isn't quite true.

It holds total bond indexes, which include corporates, high yield junk, etc.
No junk bonds in Vanguard's total bond index, but plenty of credit and interest rate risk.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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watchnerd
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Re: All Bonds in TIPS

Post by watchnerd »

vineviz wrote: Tue May 04, 2021 10:50 am
watchnerd wrote: Tue May 04, 2021 10:49 am
bigskyguy wrote: Tue May 04, 2021 10:42 am
10% Vanguard Life Strategy Growth Fund (VASGX)

We have chosen to take all of our risk on the equity side,
Not to be pedantic, but if you're holding some VASGX, that isn't quite true.

It holds total bond indexes, which include corporates, high yield junk, etc.
No junk bonds in Vanguard's total bond index, but plenty of credit and interest rate risk.
Do you consider BBB to be 'investment grade'?

It's got 16.2% of that.

Maybe near-junk?
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
bigskyguy
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Re: All Bonds in TIPS

Post by bigskyguy »

watchnerd wrote: Tue May 04, 2021 10:49 am
bigskyguy wrote: Tue May 04, 2021 10:42 am
10% Vanguard Life Strategy Growth Fund (VASGX)

We have chosen to take all of our risk on the equity side,
Not to be pedantic, but if you're holding some VASGX, that isn't quite true.

It holds total bond indexes, which include corporates, high yield junk, etc.
You are correct. Precisely, we have 2% of our retirement allocation resources in US and foreign bond indexes in VASGX. For completeness, we also have .3% of our funds in a funny money account, where I invest up to 1K in individual equities, up to a total of approximately 12K. Gives an old guy something to play with, while avoiding messing with the bulk of our portfolio. And yes, I do have some Bitcoin and Etherium in that funny money. Keeps my left brain engaged, while my right brain doesn't go ballistic.
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vineviz
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Re: All Bonds in TIPS

Post by vineviz »

watchnerd wrote: Tue May 04, 2021 10:55 am Do you consider BBB to be 'investment grade'?

It's got 16.2% of that.

Maybe near-junk?
Bloomberg Barclays and Vanguard consider BBB and up to be investment grade.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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nisiprius
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Re: All Bonds in TIPS

Post by nisiprius »

vineviz wrote: Tue May 04, 2021 10:50 am...No junk bonds in Vanguard's total bond index, but plenty of credit and interest rate risk...
"Plenty" of credit risk?

1) It is an investment-grade bond fund, as you noted. Beyond that,

2) Morningstar presents it as having an average credit quality of AA. which Morningstar calls "high."

Morningstar "portfolio" page for VBTLX

What are you going to find that's higher in a core bond fund? Here is how Morningstar presents the credit quality of a few other funds:

VCORX, Vanguard Core Bond, BBB, "Mid"
VBILX, Vanguard Intermediate-term Bond index, A, "Mid"
MTWIX, Metropolitan West Total Return, BBB, "Mid"
DGCFX, DFA Global Core Plus, AA, "High"... but Morningstar classifies it as having "extensive" interest rate risk, while VBTLX, VCORX, VBILX, or MTWIX are "moderate."
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watchnerd
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Re: All Bonds in TIPS

Post by watchnerd »

vineviz wrote: Tue May 04, 2021 11:04 am
watchnerd wrote: Tue May 04, 2021 10:55 am Do you consider BBB to be 'investment grade'?

It's got 16.2% of that.

Maybe near-junk?
Bloomberg Barclays and Vanguard consider BBB and up to be investment grade.
'Investment grade aspirational' ;)
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
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