Inflation Protected Bonds in Total Bond Index?

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golfallday
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Inflation Protected Bonds in Total Bond Index?

Post by golfallday »

Does the Total Bond Index have inflation protected bonds? Any rule of thumb as to what portion of bond portfolio should be dedicated to inflation protected bonds or is the Total Bond Index enough?
Thanks. Sorry if this has been discussed before; I have trouble narrowing my searches for some reason.
DaninCT
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Post by DaninCT »

This is an easy question and no one's responded so far, so I'll answer it. There aren't any inflation-protected bonds in the total bond index. From what I've read here, there are many opinions on the right percentage of inflation-protected bonds one should have. 50% is a common solution.
If you use Vanguard Target Retirement funds as a guide, the more conservative ones have about 30% of their bonds in inflation-protected.
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kenyan
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Post by kenyan »

In the accumulation phase, a typical range is anywhere from 0-50% of your fixed income. There's no real rule of thumb; it's personal preference. They become a much stronger consideration during withdrawal.
retiredjg
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Post by retiredjg »

I don't know if it is true, but I recall reading here once that there is a tiny percentage of TIPS in the TBM - but not enough to pay any attention to.

Opinions vary on whether to have just TBM or both; and if you want both, whether to start young or wait till later. If you decide on both, up to half TIPS is an idea that is tossed around frequently.
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golfallday
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Post by golfallday »

Thanks for the help, all.
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stratton
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Post by stratton »

retiredjg wrote:I don't know if it is true, but I recall reading here once that there is a tiny percentage of TIPS in the TBM - but not enough to pay any attention to.

Opinions vary on whether to have just TBM or both; and if you want both, whether to start young or wait till later. If you decide on both, up to half TIPS is an idea that is tossed around frequently.
There are none. It would be about 3% if they were included since they have about 1/10 the issues of nominal treasuries.

There might be some in the 0 to 1 year duration since at that point everything is essentially considered "cash."

Paul
...and then Buffy staked Edward. The end.
vlad
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Post by vlad »

There is no generally cited rule of thumb. I think TIPs are a great idea for people who are particularly vulnerable to inflation (e.g., retirees) and less appropriate for those who can outwait it or overcome it with their human capital (e.g., young working people). There is an implicit inflation premium in TIPs to pay for the inflation insurance, so if the market is at all efficient in the long term nominal Treasuries will probably outperform TIPs.
As you approach retirement, I think the ratio should change from higher return to less risk, e.g., bonds to TIPs, but I personally would not go more than 50% in any single asset class, even TIPs or Treasuries.
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