When should one start including TIPS in their bond allocation?

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Money Market
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When should one start including TIPS in their bond allocation?

Post by Money Market » Thu Apr 06, 2017 2:10 am

I am planning to have 20% of my bond allocation in TIPS for safety purposes in retirement (age 67). However, the decision to buy them at age 67 is arbitrary. I am wondering what would an appropriate age to start implementing the 20% TIPS allocation to my bonds?

This is what I intend to have at age 67

Age: 67
Desired Asset allocation: 50% stocks / 50% bonds
Desired International allocation: 0%

For the bond allocation
20% - VBTLX (Total bond market)
20% - VBILX (Intermediate-term bond fund)
5% - VAIPX (Inflation-protected securities)
5% - VTAPX (Short-term inflation-protected securities)

zuma
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Re: When should one start including TIPS in their bond allocation?

Post by zuma » Thu Apr 06, 2017 2:44 am

How old are you now? What is your reasoning for waiting until age 67 instead of adding TIPS now?

Money Market
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Re: When should one start including TIPS in their bond allocation?

Post by Money Market » Thu Apr 06, 2017 3:29 am

I'm 28 at the moment, but my goal at the moment is to maximize returns through stocks. I'm at 85% stocks/15% bonds VTSAX/VBILX/VBTLX. Since during retirement I'm more concerned about preserving capital, I am more concerned about inflation then, but I was also wondering if I should start preservation a bit earlier before retirement.

zuma
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Joined: Thu Dec 29, 2016 12:15 pm

Re: When should one start including TIPS in their bond allocation?

Post by zuma » Thu Apr 06, 2017 3:41 am

No, I wouldn't worry about TIPS at the moment. Your portfolio is dominated by stocks, which is a smart strategy at your age. Adding a small slice of TIPS in a 15% bond allocation won't make any difference. When you get closer to retirement, sure, then you can reconsider. But you have plenty of time before that; no need to plan portfolio changes 30 years in advance :)
Last edited by zuma on Thu Apr 06, 2017 3:46 am, edited 1 time in total.

trasmuss
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Re: When should one start including TIPS in their bond allocation?

Post by trasmuss » Thu Apr 06, 2017 3:44 am

If you are interested in Vanguard's thoughts on it you can review the Target Retirement portfolio for the approximate year you plan to retire. You will notice no TIPS for someone your age and a gradual increase as you get much closer to retirement.

Money Market
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Re: When should one start including TIPS in their bond allocation?

Post by Money Market » Thu Apr 06, 2017 3:52 am

Thanks everyone! I guess I'll start when I'm 67, as planned.

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abuss368
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Re: When should one start including TIPS in their bond allocation?

Post by abuss368 » Thu Apr 06, 2017 10:21 pm

I would keep it simple. Your investment portfolio is allocated 85% pos stocks and that will drive results. As a side note, Vanguard recommends a two fund bond approach with Total Bond Index and Total International Bond Index.

Vanguard adds TIPS to the Target funds a few years before retirement. In my opinion they are not required or needed. Total Bond will work just fine and provide safety and income to an investment portfolio.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

dandinsac
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Re: When should one start including TIPS in their bond allocation?

Post by dandinsac » Thu Apr 06, 2017 11:44 pm

Another alternative if you have access to a brokerage account in a tax-advantaged account...

Starting in February during the year that you turn 37, buy a 30-year TIP at auction each year. The first year, you'd want to buy a TIP equal to about 0.67% of your portfolio. The next year, you want to buy a TIP so that you have 1.34% of your portfolio in TIPS. After the third year auction, 2% should be in TIPS and so on. Buying bonds at auction lowers transaction costs compared with a TIP fund. It will also build a bond ladder that will have one bond mature each year from 67 through age 96.

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