Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

[koalb]

So I've recently re-evaluated my entire asset allocation. My target allocation is 80/20 stocks/bonds. I got into the habit of purchasing bond index funds, because I honestly didn't know any better (VBTLX, FXNAX, and a BlackRock U.S. Debt Fund through my 401k.). All held in tax advantaged accounts.

William Bernstein, in his book The Four Pillars of Investing, gives me some anxiety (or FOMO, as the kids say these days), that I'm missing out on a better approach.

He leads me to believe that:
> you shouldn't even bother with index funds
> just go assemble a TIPS, and/or Treasuries ladder
> Avoid long term bonds due to their inflationary risk
> He also recommends staying away from corporate and municipal bonds (fine, I've got no dog in that particular fight)

In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?

Thanks!


**************

"I’m not wild about bond index funds either, since about a third of their holdings consist of corporate bonds and asset-backed securities, such as mortgage vehicles, that lack government guarantees. In 2008, total bond funds suffered only minor losses because the gains in their Treasury and agency holdings mitigated the damage incurred in their corporate and asset-backed bonds. Next time, things might be different. So take as much risk as you like with equities, but center your fixed-income assets on debt with a government guarantee: CDs in amounts below the $250,000 per person FDIC limit and Treasuries. Ideally, you should purchase Treasuries at auction and sell them as needed in the secondary market. If that’s too much work, purchase a Treasury ETF or open-end Treasury mutual fund. (Treasuries are highly liquid, and it’s fine to own them in an ETF, since they’re not likely to be subject to liquidity mismatch.) Finally, the safest way to meet retirement expenses is a TIPS ladder whose annual maturities match your need for living expenses. Theoretically you should do this is with a ladder of 30 annual rungs (or perhaps fewer, more widely spaced ones), beginning with the first year of retirement. As already mentioned, no TIPS mature between 2034, although this is a problem that will slowly disappear with successive 10-year auctions by 2029. The US Treasury only issues TIPS at maturities of 5, 10, and 30 years, which makes buying a 30-year ladder only from auctions problematic. For this reason, you’ll need to make some purchases in the secondary market. Alternatively, you can approximate a TIPS ladder with a mix of long-, intermediate-, and short-term TIPS funds, the main problem, at least at present, being the lack of a low-cost long-term vehicle. Another disadvantage of a TIPS fund is the absence of the certainty of inflation-adjusted purchasing power at maturity; if TIPS yields rise, you’ll be dealing with selling at a depressed price."

Bernstein, William J.. The Four Pillars of Investing, Second Edition: Lessons for Building a Winning Portfolio (pp. 398-399).

[hudson]

In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?

His approach is optimal. Individual treasuries including TIPS and FDIC/NCUA CDs are the optimal way to go. As you said, there's a learning curve.

But for those that don't want to go to the trouble, there are low expense ETFs and funds that cover nominal treasuries and TIPS.

For starters:
TIPS: SCHP...find a lower cost intermediate TIPS ETF.
Treasuries: there are lots of good low cost ETFs. If the expense ratio is over .05%, keep looking or ask here. I'm a Bernstein-head and all individual, so I don't use them...at this time.
CDs: There are brokered CDs that you can get from a brokerage.

What durations should you use? A BIG question.

Bottom Line: Going with low expense treasury ETFs or funds is fine. So is going with zero expense brokered CDs.

[delamer]

He specifically says in the quote that Treasury ETFs are fine, and uncomplicated, during accumulation.

And TIPS funds work OK for decumulation if you want to avoid complications.

We use Treasury ETFs and some individual treasuries. We are retired but not doing withdrawals due to adequate pension & Social Security income.

We are following his advice on bonds and avoid corporates.

[blortchplop]

Last I looked, zero coupon treasuries (STRIPS) were a better deal than CDs. They had higher pre-tax yield and no state taxes.

I'm guessing there are times when CDs do better than treasuries and vice versa. One credit union I bank with lets you start an IRA with them to hold bank CDs, so that is a possibility even for bank CDs. Obviously it's easier to hold brokered CDs in tax advantaged if your plan lets you buy them (my 401k does not have a brokerage link).

I bonds are good if you need more tax deferred space or the ability to sell before maturity without risking a mark to market loss.

[Call_Me_Op]

My view - it will not make much difference in an 80/20 portfolio unless you pick very low quality (junk) bonds. People spend too much time worrying about the wrong things. It's the asset allocation that makes most of the difference - not the individual securities. Just keep expenses low (since paying expenses is a complete waste).

[ivgrivchuck]

His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

BND, VGIT, SCHP and similar are all good practical choices. SCHP is my personal favorite..

[secondopinion]

Index bond funds have not much in terms of credit risk; I am honestly not worried. I do not think it makes a lot of difference.

That being said, I can score decent deals in non-brokered CDs; so flipping between CDs and treasuries is enough for me right now. I rather take risk in other ways than credit risk or large amounts of duration risk; that is what the rest of the portfolio is for.

[ScubaHogg]

His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

[steadyosmosis]

I was convinced to go the Bernstein way.
I believe I sleep better.

[rkhusky]

I used to play the CD game, but it became too much of a hassle. Bond funds are so much easier and there is no guarantee that you will do better with individual bonds or CD’s.

I sleep much better now that professionals are choosing the bonds and I don’t have to worry about what’s coming due and when, or what current interest rates are for which duration.

[koalb]

In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?

His approach is optimal. Individual treasuries including TIPS and FDIC/NCUA CDs are the optimal way to go. As you said, there's a learning curve.

But for those that don't want to go to the trouble, there are low expense ETFs and funds that cover nominal treasuries and TIPS.

For starters:
TIPS: SCHP...find a lower cost intermediate TIPS ETF.
Treasuries: there are lots of good low cost ETFs. If the expense ratio is over .05%, keep looking or ask here. I'm a Bernstein-head and all individual, so I don't use them...at this time.
CDs: There are brokered CDs that you can get from a brokerage.

What durations should you use? A BIG question.

Bottom Line: Going with low expense treasury ETFs or funds is fine. So is going with zero expense brokered CDs.

So between Treasuries and TIPS across the various time horizons.. let's say short to intermediate-term. How do you think about your allocation? Do you divide it up equally, etc? To be clear, I'm asking about the percentage of your bond allocation.

[bikechuck]

His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

BND, VGIT, SCHP and similar are all good practical choices. SCHP is my personal favorite..

Perspectives vary ... in my 70s I built a TIPS ladder that currently takes me to age 88. All of my TIPS mature in January or February each year. Unlike a TIPS fund I will never have to withdraw money from my TIPS bonds at a loss as long as I hold them to maturity.

It took me less than two hours to build my TIPS ladder. Now that it is built I have to spend 15 minutes once a year to decide to spend, or invest the funds that mature.

I find the ladder far easier to manage than messing around with TIPS funds of short, medium and long term durations and rebalancing them appropriately as I age.

[ivgrivchuck]

His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

It depends. Life happens. Unexpected expenses, needing a longer ladder than originally anticipated, surviving spouse taking a new direction in life.

Of course if you have 10x more money than you'll ever need, then it's possible to set up a ladder and never touch it. But in that case, anything works...

[rkhusky]

I find the ladder far easier to manage than messing around with TIPS funds of short, medium and long term durations and rebalancing them appropriately as I age.

You don’t have to do that with funds, it’s a choice. You could just use an intermediate fund, and set up an automatic withdrawal to your checking. And with the fund you don’t need to worry about an unexpected expense and having to sell a bond early or reinvesting money you didn’t spend. Just take the money out of the fund when you need it.

[UpperNwGuy]

His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

And what happens to all that cash? I suspect more work will be required.

[RyeBourbon]

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

And what happens to all that cash? I suspect more work will be required.

I convert to Roth and spend it during the rest of the year.

[WeakOldGuy]

Being ignorant and lazy, I have 20% of my bond allocation in TIPS and the rest in an intermediate term US Corporate bond ETF. The TIPS is half in a short term TIPS ETF and the rest is in a TIPS ladder of iShares iBonds maturity date ETFs. The plan at this point is to reduce the short term TIPS ETF over the next few years and increase that TIPS ETF ladder.

[Mayacallie]

I’ve taken a sharp turn in the fixed income road as well. 69, retired 9 years.
Also 80/20 ( actually 80/15/5 with cash).Used to be totally invested in a municipal bond ladder co-managed by Pimco and Schwab.Fixed income High 7 figures, about 70-80 bonds with no state bias. 24 basis points for management
I now have a 5 year treasury bond ladder that I manage. Such simplicity. It’s actually fun to watch the YouTube videos on treasury investing, and I have a dedicated Schwab rep that helps with final purchases. No fees for trades or management.
As for tax consequences, the differences are minuscule. I’ve done dozens of analyses with different historical muni/treasury ratios, and muni advantages are smoke and mirrors.
RMDs start in 4 years, which slightly tilt the tax efficiency to munis, but not enough to justify the headaches.

[smartinvestor2020]

I agree with Bernstein 100% in favoring the shorter durations and using individual treasuries and TIPS. One of the smartest decisions I ever made was learning how to manage and trade treasuries individually. Once you know the basics, it is very simple and takes very little time to manage. And I sleep far better at night because I understand exactly what to expect from every treasury that I own.

[Hot Sauce]

I agree with Bernstein 100% in favoring the shorter durations and using individual treasuries and TIPS. One of the smartest decisions I ever made was learning how to manage and trade treasuries individually. Once you know the basics, it is very simple and takes very little time to manage. And I sleep far better at night because I understand exactly what to expect from every treasury that I own.

I’ve got nominal treasuries down, but cannot understand buying/selling individual TIPS. Could you point me to the resource that helped you understand how to do this for TIPS? Thanks

[Hot Sauce]

My understanding is that TIPS pay semi-annual coupons. Can these be auto-reinvested, or no? If not, seems like they create the need to do additional work if the intent is to build a TiPS ladder for LMP purposes.

[dbr]

My understanding is that TIPS pay semi-annual coupons. Can these be auto-reinvested, or no? If not, seems like they create the need to do additional work if the intent is to build a TiPS ladder for LMP purposes.

The holder of an existing ladder for income spends the maturing bond and all the interest every year from the not yet redeemed bonds.

[dbr]

I agree with Bernstein 100% in favoring the shorter durations and using individual treasuries and TIPS. One of the smartest decisions I ever made was learning how to manage and trade treasuries individually. Once you know the basics, it is very simple and takes very little time to manage. And I sleep far better at night because I understand exactly what to expect from every treasury that I own.

I’ve got nominal treasuries down, but cannot understand buying/selling individual TIPS. Could you point me to the resource that helped you understand how to do this for TIPS? Thanks

index.php
https://www.bogleheads.org/wiki/Main_Page
https://www.treasurydirect.gov/marketab ... ties/tips/

[White Coat Investor]

William Bernstein, in his book The Four Pillars of Investing, gives me some anxiety (or FOMO, as the kids say these days), that I'm missing out on a better approach.

He leads me to believe that:
> you shouldn't even bother with index funds
> just go assemble a TIPS, and/or Treasuries ladder
> Avoid long term bonds due to their inflationary risk
> He also recommends staying away from corporate and municipal bonds (fine, I've got no dog in that particular fight)

In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?

Thanks!


**************

"I’m not wild about bond index funds either, since about a third of their holdings consist of corporate bonds and asset-backed securities, such as mortgage vehicles, that lack government guarantees. In 2008, total bond funds suffered only minor losses because the gains in their Treasury and agency holdings mitigated the damage incurred in their corporate and asset-backed bonds. Next time, things might be different. So take as much risk as you like with equities, but center your fixed-income assets on debt with a government guarantee: CDs in amounts below the $250,000 per person FDIC limit and Treasuries. Ideally, you should purchase Treasuries at auction and sell them as needed in the secondary market. If that’s too much work, purchase a Treasury ETF or open-end Treasury mutual fund. (Treasuries are highly liquid, and it’s fine to own them in an ETF, since they’re not likely to be subject to liquidity mismatch.) Finally, the safest way to meet retirement expenses is a TIPS ladder whose annual maturities match your need for living expenses. Theoretically you should do this is with a ladder of 30 annual rungs (or perhaps fewer, more widely spaced ones), beginning with the first year of retirement. As already mentioned, no TIPS mature between 2034, although this is a problem that will slowly disappear with successive 10-year auctions by 2029. The US Treasury only issues TIPS at maturities of 5, 10, and 30 years, which makes buying a 30-year ladder only from auctions problematic. For this reason, you’ll need to make some purchases in the secondary market. Alternatively, you can approximate a TIPS ladder with a mix of long-, intermediate-, and short-term TIPS funds, the main problem, at least at present, being the lack of a low-cost long-term vehicle. Another disadvantage of a TIPS fund is the absence of the certainty of inflation-adjusted purchasing power at maturity; if TIPS yields rise, you’ll be dealing with selling at a depressed price."

Bernstein, William J.. The Four Pillars of Investing, Second Edition: Lessons for Building a Winning Portfolio (pp. 398-399).

There are many ways to skin the cat. My approach to bonds generally aligns with Bernstein's:

> you shouldn't even bother with index funds. Nope. i've used both bond index funds and index-like funds. But I agree with him that I'm not a fan of THE bond index fund promoted here so often. I've never been a TBM guy due to the corporates and mortgage bonds. But I've used a muni bond index fund and all of Vanguard's bond funds are index like (low cost and broadly diversified and low turnover)
> just go assemble a TIPS, and/or Treasuries ladder. Maybe. I've done this and I'm not sure it's worth the hassle. The risk and cost you eliminate by doing this doesn't seem all that significant to me and maybe not worth the hassle.
> Avoid long term bonds due to their inflationary risk. I agree.
> He also recommends staying away from corporate and municipal bonds (fine, I've got no dog in that particular fight). I agree.

Maybe I'd like individual treasuries (TIPS mostly) better if I bought them at Vanguard or Fidelity instead of Treasury Direct. Dunno. I think I'm dumping the I bonds though and that'll get rid of two Treasury Direct accounts.

[steadyosmosis]

My understanding is that TIPS pay semi-annual coupons. Can these be auto-reinvested, or no? If not, seems like they create the need to do additional work if the intent is to build a TiPS ladder for LMP purposes.

30-yr TIPS ladder in my TIRA.
Each year when one matures, and when interest is paid on any of them, I just re-invest the money, sometimes buying another ladder rung.
(Can't spend it without penalty b/c I am not yet age 59.5.)

[9-5 Suited]

Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.

[ScubaHogg]

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

And what happens to all that cash? I suspect more work will be required.

The cash would be for spending. That’s the entire point

What are you doing with the cash from the bond fund?

[Circle the Wagons]

Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.

Similar though with a hybrid of a cheap interm. fund (like SCHP) and directly held long TIPS, to avoid the expense of LTPZ and get more duration per dollar. Not a strict ladder but overall fixed income is matched to a target duration. Establishing the target requires a little math.

[UpperNwGuy]

And what happens to all that cash? I suspect more work will be required.

The cash would be for spending. That’s the entire point

What are you doing with the cash from the bond fund?

I only pull it out when I need it. With a ladder, the bonds spit out cash on a schedule that was determined years earlier.

[bikechuck]

Once you build the ladder is it any more work? Bonds will mature and cash will be deposited to your account

And what happens to all that cash? I suspect more work will be required.

You are right ... I need to spend 15 minutes twice a year spending or reinvesting the semi annual interest payments and bonds that mature. In my case all of my rungs mature in January or February which keeps it pretty easy.

[mary1969]

1/3 of my fixed income is dedicated to BND and the remaining 2/3rd is invested in Treasuries and more recently individual TIPS. I have been trying to extend duration and recently bought 5, 7, 10, and 20 year auctions and 10 year TIPS.

[2pedals]

I prefer short-duration to intermediate-duration TIPS ETFs or bond funds in my tIRA account. Our regular expenses are covered by a pension and my spouse's social security. The rest of our expenses are discretionary and can be lumpy. Dividends in taxable accounts from equity index funds are not automatically reinvested and can be spent as desired. Distributions from TIPS funds are automatically reinvested in my tIRA account. More income is on the way after I start taking social security (~4 years when I reach age 70). I see no reason to liability match. It is easy enough to sell and pay as we go until age 70. I use bonds to help reduce portfolio volatility and help us sleep well at night.

I think fixed-income investments can become very complicated. I think it's important to make it as simple as you can for your spouse who may not be as savvy with investments after I pass away. I have little confidence in my spouse's ability to manage something with too many moving parts and BH type tweaking strategies.

[9-5 Suited]

Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.

Similar though with a hybrid of a cheap interm. fund (like SCHP) and directly held long TIPS, to avoid the expense of LTPZ and get more duration per dollar. Not a strict ladder but overall fixed income is matched to a target duration. Establishing the target requires a little math.

A great approach. Paying the expense ratios on the TIPS ETFs is one of the small imperfections I’m okay with since our portfolio ER is < 10 bps. But if you’re willing to buy the individual bonds, it has its advantages. Some math is needed in either case.

[WeakOldGuy]

The cash would be for spending. That’s the entire point

What are you doing with the cash from the bond fund?

I only pull it out when I need it. With a ladder, the bonds spit out cash on a schedule that was determined years earlier.

I setup the ladder to mature each rung in my IRA when I need to start RMDs. I will have to withdraw from that account anyway, whether I need it or not.

[tibbitts]

OP: have you read Bernstein's own comments (and all the others) in this recent thread?

viewtopic.php?p=8226168

[Parkinglotracer]

Consider a three year treasury ladder. Simple, no expense, transparent, state tax free.

[hudson]

OP: have you read Bernstein's own comments (and all the others) in this recent thread?

viewtopic.php?p=8226168#p8226168

Thanks tibbitts! I missed it.
I saw down lower in the discussion where Allan Roth recommended using kaesler's tipsladder.com to "easily" build a TIPS ladder. I built one and plan to do another.

viewtopic.php?p=8227037#p8227037

If interested, build a trial TIPS ladder or two before spending a dime.

It's been my experience that you can't fully understand TIPS without owning them.
Maybe start small...buy a few...learn a little...sell them after a week...learn some more.

[Hot Sauce]

Where do people hold their TIPS ladders - IRA or taxable?

To preserve the backdoor Roth process, I don’t have a traditional IRA. And I can’t buy individual TIPS in my 401k. So that leaves taxable, but they don’t seem very tax efficient.

Do people build the ladders while working or wait until retired

[tibbitts]

Where do people hold their TIPS ladders - IRA or taxable?

To preserve the backdoor Roth process, I don’t have a traditional IRA. And I can’t buy individual TIPS in my 401k. So that leaves taxable, but they don’t seem very tax efficient.

Do people build the ladders while working or wait until retired

I could be wrong but my impression is that most people hold them in deferred accounts, not Roth or taxable.

As for purchase timing, something I haven't seen discussed a lot (and don't have an opinion on myself, but would be interested in hearing what others think) is how remaining TIPS ladders in deferred will work out for the presumably younger non-spouses who inherit them, relative to other fixed income options.

[dbr]

Where do people hold their TIPS ladders - IRA or taxable?

To preserve the backdoor Roth process, I don’t have a traditional IRA. And I can’t buy individual TIPS in my 401k. So that leaves taxable, but they don’t seem very tax efficient.

Do people build the ladders while working or wait until retired

I could be wrong but my impression is that most people hold them in deferred accounts, not Roth or taxable.

As for purchase timing, something I haven't seen discussed a lot (and don't have an opinion on myself, but would be interested in hearing what others think) is how remaining TIPS ladders in deferred will work out for the presumably younger non-spouses who inherit them, relative to other fixed income options.

A factor here is that the plan is at the mercy of what interest rates are when one has the money and the intent to invest. Three or four years ago when the 30 year real yield was -2% no one would be talking about this. Some one with a plan to perhaps retire five or ten years from now has a similar problem forecasting how that is going to work. So it is a good question when to start and with what.

[koalb]

OP: have you read Bernstein's own comments (and all the others) in this recent thread?

viewtopic.php?p=8226168

I haven’t yet, but I will now. Thank you!

[Blues]

I tried individual Treasuries for a few years and returned to funds...ST Treasuries and ST TIPS, to round out my TSP G Fund. It makes managing our already straightforward portfolio that much easier with the added bonus of saving my missus the hassle of dealing with something she has no interest in managing if I predecease her.

It also makes reinvesting that much easier since we haven't had to spend any of our income distributions in over 20 years of retirement. (Retired from federal service at 51.)

I am a huge fan of Bernstein, Swedroe, Bogle and fellow travelers, but in this one regard I choose a slightly different path. Obviously, mileage will vary.

[koalb]

In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?

His approach is optimal. Individual treasuries including TIPS and FDIC/NCUA CDs are the optimal way to go. As you said, there's a learning curve.

But for those that don't want to go to the trouble, there are low expense ETFs and funds that cover nominal treasuries and TIPS.

For starters:
TIPS: SCHP...find a lower cost intermediate TIPS ETF.
Treasuries: there are lots of good low cost ETFs. If the expense ratio is over .05%, keep looking or ask here. I'm a Bernstein-head and all individual, so I don't use them...at this time.
CDs: There are brokered CDs that you can get from a brokerage.

What durations should you use? A BIG question.

Bottom Line: Going with low expense treasury ETFs or funds is fine. So is going with zero expense brokered CDs.

Ok, a few follow-up questions if I may.

What are the pros/cons of ETF bonds vs. Treasury and TIPS ladders during the accumulation phase?

At the risk of asking a super-dumb question - So if you build your own TIPS or Treasury ladder, is the Expense Ratio effectively 0.0%?

[tibbitts]

What are the pros/cons of ETF bonds vs. Treasury and TIPS ladders during the accumulation phase?

At the risk of asking a super-dumb question - So if you build your own TIPS or Treasury ladder, is the Expense Ratio effectively 0.0%?

Depending on what ladder you're trying to build, you may have to purchase at least some securities on the secondary market, because new issues simply aren't available for the maturity date you want, and there can be a cost associated with that. But a ladder should be very low cost overall.

By "ETF bonds" I don't know if you mean the newish defined-maturity variety, but in general anything but an individual bond (in a ladder or otherwise) won't have a maturity date, so there's won't be a specific date in the future when you'll know what the value of the security will be. Almost nobody seemed to care about that for decades until 2022. Now some people do and some don't.

[hudson]

Ok, a few follow-up questions if I may.

What are the pros/cons of ETF bonds vs. Treasury and TIPS ladders during the accumulation phase?

At the risk of asking a super-dumb question - So if you build your own TIPS or Treasury ladder, is the Expense Ratio effectively 0.0%?

ER = .00% for individual nominal treasuries and TIPS? Yes

ETFs vs individual treasuries and TIPS
ETFs are easier but have expenses
Treasuries including TIPS have a learning curve.

I started with low expense treasury funds and ETFs; now I'm all treasuries including TIPS and FDIC/NCUA CDs

[hudson]

Treasuries including TIPS have a learning curve.

I probably read every individual TIPS post for years and thought that I understood TIPS.
If somebody posted a TIPS question, I tried to answer it to myself, then followed later posts to see if I was close.

I then bought ten $1K TIPS and nominals of various durations just for giggles. In the beginning, I had to call Vanguard to get through my first online transaction; I was over-thinking the directions and the numbers were confusing. I held them for a week and sold them all. The overall purchase price was a lot more than $10K. I probably lost $20 during the week. Cheap education.
I learned that I still had much to learn.

Bottom Line: Reading about TIPS and nominals wasn't enough. I had to buy and sell.
TIPS are complex; I'm getting there, but I still have much to learn.

[CyclingDuo]

Where do people hold their TIPS ladders - IRA or taxable?

To preserve the backdoor Roth process, I don’t have a traditional IRA. And I can’t buy individual TIPS in my 401k. So that leaves taxable, but they don’t seem very tax efficient.

Do people build the ladders while working or wait until retired

Does your 401k have a brokerage window option?

[tibbitts]

This thread reminds me of the Windows / MacOS / Linux threads: whatever you have, the threads will make you think you should probably have something else, even though in the end it might not matter.

[rkhusky]

Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.

[hudson]

Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.

Correct
Funds and ETFs have the same issue.
What does one do?
What would Bill Bernstein say?