Why (or at what YTM) does it make sense to buy a 20+ year TIPS...? "Draft" Conclusion page 5

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CraigTester
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Why (or at what YTM) does it make sense to buy a 20+ year TIPS...? "Draft" Conclusion page 5

Post by CraigTester »

Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004 (E.g. starting mth)
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
Last edited by CraigTester on Thu Jun 13, 2024 4:13 pm, edited 4 times in total.
IDpilot
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by IDpilot »

I wasn't aware that Shiller ever provided any data on the Total Stock Market return. His data set for his book Irrational Exuberance is for the Standard and Poor's Composite Index which is now called the Standard and Poor's 500. Shiller specifically used this index's original name to emphasis that it did not contain always contain 500 stocks. It was expanded to 500 stocks in 1957 and prior to that it had only 90, which was the number of stocks included from 1926.

So, won't VOO be more appropriate comparison than VTI since you are using Standard and Poor's Composite Index values to set your hurdle?
Last edited by IDpilot on Wed Jun 05, 2024 5:44 pm, edited 1 time in total.
muffins14
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by muffins14 »

CraigTester wrote: Wed Jun 05, 2024 2:26 pm Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
4.5% real
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HootingSloth
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by HootingSloth »

Here's one way I have thought about this question. If the stocks I already own have a real return equal to the current TIPS yield or higher over the next 20 years, I will have more than enough money and will be happy, even if I don't buy any more stocks now. If stocks return less than TIPS over that time frame, then buying more stocks now will not fix my problem, but buying more TIPS may. So I buy TIPS.
Building TIPS ladder for all residual needs and some wants after SS, pension, and paid-off house. Other wants from 5% constant percentage from Risk Portfolio (80/20 AA w/ 80% global + 20% US-tilt)
dust
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by dust »

The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by muffins14 »

dust wrote: Wed Jun 05, 2024 6:22 pm The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
I sort of disagree.

My goal is to get a 4% real return during accumulation.

If I got that from TIPS, great, done. however there’s no upside beyond that, hence I’d actually place a higher required amount on that. Stocks, bonds, shoes, whatever. If it’s liquid and gives me >= 4% real return through accumulation , great.
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er999
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by er999 »

It depends on how much you have. If you have $100k total portfolio, VTI all the way. If you have 5-10 million buy some 20+ year tips. In between you have to balance how much you value the certainty of tips vs the high probability (but not guaranteed) of higher returns of stocks over the long run.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by BirdFood »

dust wrote: Wed Jun 05, 2024 6:22 pm The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
But I’d say that’s based on the assumption that the market changes, and that most people don’t already have “enough” and aren’t at the “when you win the game, stop playing” point.

A sufficiently high return from TIPS might take a lot of people across that point.

Forgot to address the “market changes” point—once you’ve got sufficiently high-paying and sufficiently long-term TIPS, and decide that’s what you invest in, the market, for you, arguably stops changing.
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mmse
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by mmse »

CraigTester wrote: Wed Jun 05, 2024 2:26 pm suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?

CAGR , % Time
5.00% , 63%
6.00% , 49%
7.00% , 39%
As a rule of thumb, if TIPS yield reaches or exceeds the median VTI yield, then VTI has no place in the portfolio. Based on your data it is 6%. Here is the relevant article from the authors of "The missing billionaires":
https://elmwealth.com/earnings-yield-dy ... llocation/

Unfortunately, the most relevant Chart 3 is not available, but here is the relevant sentence:
The chart below shows the allocation to equities resulting from the Merton Rule, which we use in our historical analysis from the end of 1997 (the start of the TIPS market) to the end of 2021.11 In the first 3 1/2 years of the study, the desired allocation to equities was zero, because the Earnings Yield of the stock market was relatively low, TIPS yields were high, and therefore the Excess Earnings Yield was negative.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by avalpert1 »

dust wrote: Wed Jun 05, 2024 6:22 pm The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
It isn't necessarily market timing - if TIPS yields were to be at a rate high enough to provide your future spending needs you would have no reason to take any risk in stocks and could (maybe even should) move 100% to TIPS - the question of what that rate is isn't one of market timing it is one of identifying what your investment growth needs are for your goals.
AlwaysLearningMore
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by AlwaysLearningMore »

Seems like a big decision to make given the linchpin presumed assurance that the CPI (in whatever incarnation it will be in years to come) will faithfully account for inflation the way you think it will.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by one_speed »

Are you OK allocating to a single country's debt obligations?
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by whodidntante »

Probably never. But not because I'm a hopeless stock investor. It's because markets have a way of balancing things out, at least in the long run, and when they are allowed to.

In the current market, TIPS that yield 6% real with a suitably long duration would be amazing, and impossible to ignore. I'd seriously back up the truck. The only problem is that they don't exist in the current market, and you really don't want to see the event that gets us there.

If TIPS with 6% real yield did exist, stock valuations would very likely get crushed on the way there, and expected returns for stocks would still be higher than TIPS. It might be due to some huge economic disruption, like deflation, or a severe liquidity crisis. That's also likely to crush stocks.

One exceptional period where things didn't properly balance out was the QE era we just snapped out of. There was massive, sustained yield manipulation that inflated the prices of stocks and bonds for years. Bonds got crushed once huge buyers stepped out of the market. It has not fully reset, but the free market worked when it was allowed to.

Whether those buyers should have manipulated the markets is not really a subject worth my consideration. I'm instead acknowledging how those actions impacted markets.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?

We know from other threads, that many (or a least some) on this forum seem very excited to do so... Why?
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by BirdFood »

CraigTester wrote: Wed Jun 05, 2024 11:39 pm As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by muffins14 »

CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
You should be aware that a 21 year TIPS has an exactly known, guaranteed real return and you will receive 2.1% real plus your principal in 21 years.

Stocks might give you 2.1% real, or -50% real. You just don't know what it will be, and they have a higher spread in outcomes than bonds do. People buy bonds to reduce that uncertainty.

As an example, say you are 60 and planning to retire at 65. You are 100% stocks because you plan to live to 85 and "understand the data" that stocks usually give higher real return than TIPS. Your portfolio goes down 60% and instead of having 20x, you now have 8x. Would you confidently retire at 65 years of age if you only had an 8x portfolio, or 10x? If you had a more balanced portfolio, perhaps you'd still have had 13x instead of 8x, which might feel much nicer
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by IDpilot »

CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%*
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

*The twenty-year period beginning April 1, 1901 had a real CAGR of -0.01%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR(real)
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% 1.34% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real small chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "

Edited to correct my math error in my original computation the sample error
Last edited by IDpilot on Thu Jun 06, 2024 12:50 pm, edited 2 times in total.
BirdFood
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by BirdFood »

CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
So you are objecting to bonds in general? Still not getting your point.
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by secondopinion »

CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.


As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?

We know from other threads, that many (or a least some) on this forum seem very excited to do so... Why?
Is there enough growth to make 6% real returns a reality going forward? The prosperity cannot come out of thin air. We could the returns by P/E expansion, but then what?

Unless we do get such prosperity…
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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CraigTester
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

IDpilot wrote: Thu Jun 06, 2024 9:39 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance.. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "
Fair post (1st part), questions about 2nd part....

First, yes the data source is Shiller online monthly data, https://shillerdata.com/

The first 20 year period begins in Jan 1905 and ends in Jan 1925....repeats until Jan 2004 - Jan 2024....

%Time is simply the percent of monthly instances where the real return exceeded the respective hurdle.

If you want to begin the analysis in 1871, it doesn't meaningfully change the answer, but no problem if you're ok including data from 1871-1904

There was one period, May 1901-Aug 1921, where it required 20 years and 3 months to exceed 0% but it fell off in the rounding, but if you want to include it, no problem...

As for the whole discussion about independent data periods, you are of course correct from a puritans perspective, but it doesn't change the result that an individual would have actually experienced had they held US stocks for each of the successive monthly 20 year periods reflected in the OP.... And perhaps more importantly, it's all we have....

So on to the more interesting discussion, IMHO:

What to do about it....?

If we believe what you wrote above that:
"you still have a very real chance of getting a negative real return in the next 20 years from the US stock market."

Then I might buy a 21, 22, etc....year TIPS....

But I'd be very interested to understand how you reached that conclusion?

P.S. The below looks at a proxy for including Int'l index data, created in a different thread by poster Siamond. (Once again, data is limited but still interesting)

Image
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CraigTester
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

muffins14 wrote: Thu Jun 06, 2024 9:13 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
You should be aware that a 21 year TIPS has an exactly known, guaranteed real return and you will receive 2.1% real plus your principal in 21 years.

Stocks might give you 2.1% real, or -50% real. You just don't know what it will be, and they have a higher spread in outcomes than bonds do. People buy bonds to reduce that uncertainty.

As an example, say you are 60 and planning to retire at 65. You are 100% stocks because you plan to live to 85 and "understand the data" that stocks usually give higher real return than TIPS. Your portfolio goes down 60% and instead of having 20x, you now have 8x. Would you confidently retire at 65 years of age if you only had an 8x portfolio, or 10x? If you had a more balanced portfolio, perhaps you'd still have had 13x instead of 8x, which might feel much nicer
Similar to the above exchange, if you commit to holding a US stock index for 20 years, history says you will at least break-even.....

Note this doesn't preclude a 50% drop along the way...

But if you think of taking a position in say VT or VTI and NOT selling for 20 years, history is on your side to at least preserve your purchasing power..... And there is a very high historical probability you will do MUCH better than just breaking even....
IDpilot
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by IDpilot »

CraigTester wrote: Thu Jun 06, 2024 11:47 am
IDpilot wrote: Thu Jun 06, 2024 9:39 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance.. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "
Fair post (1st part), questions about 2nd part....

First, yes the data source is Shiller online monthly data, https://shillerdata.com/

The first 20 year period begins in Jan 1905 and ends in Jan 1925....repeats until Jan 2004 - Jan 2024....

%Time is simply the percent of monthly instances where the real return exceeded the respective hurdle.

If you want to begin the analysis in 1871, it doesn't meaningfully change the answer, but no problem if you're ok including data from 1871-1904

There was one period, May 1901-Aug 1921, where it required 20 years and 3 months to exceed 0% but it fell off in the rounding, but if you want to include it, no problem...

As for the whole discussion about independent data periods, you are of course correct from a puritans perspective, but it doesn't change the result that an individual would have actually experienced had they held US stocks for each of the successive monthly 20 year periods reflected in the OP.... And perhaps more importantly, it's all we have....

So on to the more interesting discussion, IMHO:

What to do about it....?

If we believe what you wrote above that:
"you still have a very real chance of getting a negative real return in the next 20 years from the US stock market."

Then I might buy a 21, 22, etc....year TIPS....

But I'd be very interested to understand how you reached that conclusion?From my post, "The mean is 6.49% with a sample error of 6.52%1.34% at the 90% confidence level." Roughly, this means that you have a 5% chance of a real return less than 6.49%-6.52% 1.34% = -0.03% 5.15%. The higher lower your threshold, i.e. 2% instead of 5.15%, the greater lower your chance of being less than your threshold.

P.S. The below looks at a proxy for including Int'l index data, created in a different thread by poster Siamond. (Once again, data is limited but still interesting)

Image

Edited to fix a math error in my original post.
Last edited by IDpilot on Thu Jun 06, 2024 12:46 pm, edited 1 time in total.
muffins14
Posts: 6051
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by muffins14 »

CraigTester wrote: Thu Jun 06, 2024 11:52 am
muffins14 wrote: Thu Jun 06, 2024 9:13 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am
CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
You should be aware that a 21 year TIPS has an exactly known, guaranteed real return and you will receive 2.1% real plus your principal in 21 years.

Stocks might give you 2.1% real, or -50% real. You just don't know what it will be, and they have a higher spread in outcomes than bonds do. People buy bonds to reduce that uncertainty.

As an example, say you are 60 and planning to retire at 65. You are 100% stocks because you plan to live to 85 and "understand the data" that stocks usually give higher real return than TIPS. Your portfolio goes down 60% and instead of having 20x, you now have 8x. Would you confidently retire at 65 years of age if you only had an 8x portfolio, or 10x? If you had a more balanced portfolio, perhaps you'd still have had 13x instead of 8x, which might feel much nicer
Similar to the above exchange, if you commit to holding a US stock index for 20 years, history says you will at least break-even.....

Note this doesn't preclude a 50% drop along the way...

But if you think of taking a position in say VT or VTI and NOT selling for 20 years, history is on your side to at least preserve your purchasing power..... And there is a very high historical probability you will do MUCH better than just breaking even....
Sure, but you also might not. You could get consistent 4% returns for 19 years and then -50% and be about back to even. Some people might prefer to be guaranteed +119% rather than somewhere between -30% and +300%
Crom laughs at your Four Winds
Topic Author
CraigTester
Posts: 1743
Joined: Wed Aug 08, 2018 6:34 am

Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

muffins14 wrote: Thu Jun 06, 2024 11:59 am
CraigTester wrote: Thu Jun 06, 2024 11:52 am
muffins14 wrote: Thu Jun 06, 2024 9:13 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am

Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
You should be aware that a 21 year TIPS has an exactly known, guaranteed real return and you will receive 2.1% real plus your principal in 21 years.

Stocks might give you 2.1% real, or -50% real. You just don't know what it will be, and they have a higher spread in outcomes than bonds do. People buy bonds to reduce that uncertainty.

As an example, say you are 60 and planning to retire at 65. You are 100% stocks because you plan to live to 85 and "understand the data" that stocks usually give higher real return than TIPS. Your portfolio goes down 60% and instead of having 20x, you now have 8x. Would you confidently retire at 65 years of age if you only had an 8x portfolio, or 10x? If you had a more balanced portfolio, perhaps you'd still have had 13x instead of 8x, which might feel much nicer
Similar to the above exchange, if you commit to holding a US stock index for 20 years, history says you will at least break-even.....

Note this doesn't preclude a 50% drop along the way...

But if you think of taking a position in say VT or VTI and NOT selling for 20 years, history is on your side to at least preserve your purchasing power..... And there is a very high historical probability you will do MUCH better than just breaking even....
Sure, but you also might not. You could get consistent 4% returns for 19 years and then -50% and be about back to even. Some people might prefer to be guaranteed +119% rather than somewhere between -30% and +300%
Note, as I attempted to explain earlier....I'm not proposing a 100% stock portfolio.

I personally hold a 1-20 year TIPS ladder, with rungs maturing every year.....

But for the rungs reflecting years 21, 22, etc.... History suggests you are much better off using a committed (e.g hold for 21, 22, etc years) position in say VT or VTI

Think of it as a 20 year TIPS ladder with another 20 years of VTI extending your "ladder" to a total of 40 years....
Topic Author
CraigTester
Posts: 1743
Joined: Wed Aug 08, 2018 6:34 am

Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

IDpilot wrote: Thu Jun 06, 2024 11:58 am
CraigTester wrote: Thu Jun 06, 2024 11:47 am
IDpilot wrote: Thu Jun 06, 2024 9:39 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am
BirdFood wrote: Thu Jun 06, 2024 12:02 am

Are you asking why people buy bonds? How are TIPS a separate question?

I would buy a 21 year TIPS because I expect to be alive and need to buy stuff in 21 years.
If you're saying they may not understand the data, I think you might be right....
I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance.. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "
Fair post (1st part), questions about 2nd part....

First, yes the data source is Shiller online monthly data, https://shillerdata.com/

The first 20 year period begins in Jan 1905 and ends in Jan 1925....repeats until Jan 2004 - Jan 2024....

%Time is simply the percent of monthly instances where the real return exceeded the respective hurdle.

If you want to begin the analysis in 1871, it doesn't meaningfully change the answer, but no problem if you're ok including data from 1871-1904

There was one period, May 1901-Aug 1921, where it required 20 years and 3 months to exceed 0% but it fell off in the rounding, but if you want to include it, no problem...

As for the whole discussion about independent data periods, you are of course correct from a puritans perspective, but it doesn't change the result that an individual would have actually experienced had they held US stocks for each of the successive monthly 20 year periods reflected in the OP.... And perhaps more importantly, it's all we have....

So on to the more interesting discussion, IMHO:

What to do about it....?

If we believe what you wrote above that:
"you still have a very real chance of getting a negative real return in the next 20 years from the US stock market."

Then I might buy a 21, 22, etc....year TIPS....

But I'd be very interested to understand how you reached that conclusion?From my post, "The mean is 6.49% with a sample error of 6.52% at the 90% confidence level." Roughly, this means that you have a 5% chance of a real return less than 6.49%-6.52% = -0.03%. The higher your threshold, i.e. 2% instead of -0.03%, the greater your chance of being less than your threshold.

P.S. The below looks at a proxy for including Int'l index data, created in a different thread by poster Siamond. (Once again, data is limited but still interesting)

Image
Quibble acknowledged, but -.03% real is very close to preserving your purchasing power over a 20 year period..... And importantly, represents the "worst" historical outcome in the last 100+ years....
IDpilot
Posts: 421
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by IDpilot »

CraigTester wrote: Thu Jun 06, 2024 12:11 pm
IDpilot wrote: Thu Jun 06, 2024 11:58 am
CraigTester wrote: Thu Jun 06, 2024 11:47 am
IDpilot wrote: Thu Jun 06, 2024 9:39 am
CraigTester wrote: Thu Jun 06, 2024 8:46 am

If you're saying they may not understand the data, I think you might be right....
I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance.. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "
Fair post (1st part), questions about 2nd part....

First, yes the data source is Shiller online monthly data, https://shillerdata.com/

The first 20 year period begins in Jan 1905 and ends in Jan 1925....repeats until Jan 2004 - Jan 2024....

%Time is simply the percent of monthly instances where the real return exceeded the respective hurdle.

If you want to begin the analysis in 1871, it doesn't meaningfully change the answer, but no problem if you're ok including data from 1871-1904

There was one period, May 1901-Aug 1921, where it required 20 years and 3 months to exceed 0% but it fell off in the rounding, but if you want to include it, no problem...

As for the whole discussion about independent data periods, you are of course correct from a puritans perspective, but it doesn't change the result that an individual would have actually experienced had they held US stocks for each of the successive monthly 20 year periods reflected in the OP.... And perhaps more importantly, it's all we have....

So on to the more interesting discussion, IMHO:

What to do about it....?

If we believe what you wrote above that:
"you still have a very real chance of getting a negative real return in the next 20 years from the US stock market."

Then I might buy a 21, 22, etc....year TIPS....

But I'd be very interested to understand how you reached that conclusion?From my post, "The mean is 6.49% with a sample error of 6.52% 1.34% at the 90% confidence level." Roughly, this means that you have a 5% chance of a real return less than 6.49%-6.52% 1.34% = -0.03% 5.15%. The higher lower your threshold, i.e. 2% instead of -0.03% 5.15%, the greater lower your chance of being less than your threshold.

P.S. The below looks at a proxy for including Int'l index data, created in a different thread by poster Siamond. (Once again, data is limited but still interesting)

Image
Quibble acknowledged, but -.03% real is very close to preserving your purchasing power over a 20 year period..... And importantly, represents the "worst" historical outcome in the last 100+ years....
It is worse than a quibble, it is a math error. The correct value for the sample error is 1.34% and not 6.52%. That changes a lot.
Topic Author
CraigTester
Posts: 1743
Joined: Wed Aug 08, 2018 6:34 am

Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

IDpilot wrote: Thu Jun 06, 2024 1:05 pm
CraigTester wrote: Thu Jun 06, 2024 12:11 pm
IDpilot wrote: Thu Jun 06, 2024 11:58 am
CraigTester wrote: Thu Jun 06, 2024 11:47 am
IDpilot wrote: Thu Jun 06, 2024 9:39 am

I think we all could stand for a bit more clarity on just what data you provided.

It appears to be a truncated summary of the real return information based on Shiller's data set for his book Irrational Exuberance.. Why you choose to use January 1905 to January 2004 instead of the entire data set from January 1871 to January 2024 is not explained. Nor to you provide any details on how you came up with the %Time values. Did you use the 1,549 overlapping month to month periods? If so, then the full set of data looks like this;

CAGR, % Time
-1.0%, 100.0%
0.0%, 99.9%
1.0%, 98.1%
2.0%, 93.0%
3.0%, 86.8%
4.0%, 77.6%
5.0%, 71.3%
6.0%, 59.2%
7.0%, 46.1%
8.0%, 32.5%
9.0%, 20.2%
10.0%, 11.9%
11.0%, 9.2%
12.0%, 3.5%
13.0%, 0.4%

But does that really tell anyone anything about what to expect for future 20-year real returns for the total US stock market? Not really. The biggest problem is that you don't really have 1,549 independent samples. From Shiller's data you can only get 7 independent 20-year returns and they look like this;

First year, CAGR
1871, 8.35%
1891, 6.89%
1911, 5.55%
1931, 4.56%
1951, 9.22%
1971, 4.38%
1991, 6.48%

The mean is 6.49% with a sample error of 6.52% at the 90% confidence level. Now, if you believe that historical performance predicts future performance and that the historical performance of the S&P Composite Index is representative of the entire US stock market you still have a very real chance of getting a negative real return in the next 20 years from the US stock market. And, of course, the chance of getting less than a positive real return from TIPS is even greater.

So, in the immortal words of Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?' "
Fair post (1st part), questions about 2nd part....

First, yes the data source is Shiller online monthly data, https://shillerdata.com/

The first 20 year period begins in Jan 1905 and ends in Jan 1925....repeats until Jan 2004 - Jan 2024....

%Time is simply the percent of monthly instances where the real return exceeded the respective hurdle.

If you want to begin the analysis in 1871, it doesn't meaningfully change the answer, but no problem if you're ok including data from 1871-1904

There was one period, May 1901-Aug 1921, where it required 20 years and 3 months to exceed 0% but it fell off in the rounding, but if you want to include it, no problem...

As for the whole discussion about independent data periods, you are of course correct from a puritans perspective, but it doesn't change the result that an individual would have actually experienced had they held US stocks for each of the successive monthly 20 year periods reflected in the OP.... And perhaps more importantly, it's all we have....

So on to the more interesting discussion, IMHO:

What to do about it....?

If we believe what you wrote above that:
"you still have a very real chance of getting a negative real return in the next 20 years from the US stock market."

Then I might buy a 21, 22, etc....year TIPS....

But I'd be very interested to understand how you reached that conclusion?From my post, "The mean is 6.49% with a sample error of 6.52% 1.34% at the 90% confidence level." Roughly, this means that you have a 5% chance of a real return less than 6.49%-6.52% 1.34% = -0.03% 5.15%. The higher lower your threshold, i.e. 2% instead of -0.03% 5.15%, the greater lower your chance of being less than your threshold.

P.S. The below looks at a proxy for including Int'l index data, created in a different thread by poster Siamond. (Once again, data is limited but still interesting)

Image
Quibble acknowledged, but -.03% real is very close to preserving your purchasing power over a 20 year period..... And importantly, represents the "worst" historical outcome in the last 100+ years....
It is worse than a quibble, it is a math error. The correct value for the sample error is 1.34% and not 6.52%. That changes a lot.
Let's try it this way.... Below is a chart (created in a different thread by poster, McQ) reflecting the same data in the OP with a similar punchline:

US stocks, held for a 20+ year duration, have a phenomenal historical record of preserving one's purchasing power, and usually far exceed that....

Further, as observed in this chart, you can see that moments when real returns approach break-even, tend to be brief....

So back to the question of the thread, why (or at what YTM) does it make sense to buy a 20+ year TIPS...?


Image
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sycamore
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by sycamore »

CraigTester wrote: Thu Jun 06, 2024 1:30 pm So back to the question of the thread, why (or at what YTM) does it make sense to buy a 20+ year TIPS...?
I can tell you "I would buy 20+ year TIPS if the YTM was xx%".
I can also tell you "I would sell a bunch of my stocks and instead buy 20+ year TIPS if the YTM was yy%".

But I can't tell you why, at least not exactly. A lot of it has to do with my wish for "certainty" (but I'm aware that inflation for my spending needs is somewhat uncertain, etc.) This is very much about the "personal" in personal finance.


One thing I've observed in this thread (and others) is the conversation keeps coming back to the return characteristics of 20 year stock returns. I kinda get the impression that you feel that's the only fact to consider? :)

If you were a financial advisor, and your client said "I have some concerns about stocks and taxation and my family and the future and blah, blah... and my financial goals can be met using TIPS to provide a large degree of certainty for future spending flows not just in years 1-19, but 20-30 as well." Would you tell your client, "You should not be using TIPS for more than 20 years. I mean, just look at the 20 year stock return distributions!" ?

Basically, what other factors do you think are relevant when deciding to invest for 20+ years?

Another thought... let's assume it is a bad idea to buy 20+ year TIPS, and you go ahead and buy stocks. When is it a good time to sell the stocks in order to lock in gains so as to ensure you won't lose the bet against 20+ year TIPS? After 1 year? 5 years? 10 years? Is this a "I'm committed to the 20 years no matter what?" Seems like if we're framing the initial investing question as "TIPS versus stocks based on past returns", why not ask that question as time goes by?
marcopolo
Posts: 8889
Joined: Sat Dec 03, 2016 9:22 am

Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by marcopolo »

CraigTester wrote: Wed Jun 05, 2024 2:26 pm Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004 (E.g. starting mth)
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
That's what US equities did in the past.
Have you abandoned all your hand wringing about valuations and lower expected return based on things like CAPE, etc?
Not that long ago, you were saying people would be crazy to be in the US market now due to historically high CAPE, now you are advocating for going all in to US stocks for 20 year time horizon?

Who are you, and what did you do to CraigTester?!?
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
CraigTester
Posts: 1743
Joined: Wed Aug 08, 2018 6:34 am

Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by CraigTester »

sycamore wrote: Thu Jun 06, 2024 3:21 pm
CraigTester wrote: Thu Jun 06, 2024 1:30 pm So back to the question of the thread, why (or at what YTM) does it make sense to buy a 20+ year TIPS...?
I can tell you "I would buy 20+ year TIPS if the YTM was xx%".
I can also tell you "I would sell a bunch of my stocks and instead buy 20+ year TIPS if the YTM was yy%".

But I can't tell you why, at least not exactly. A lot of it has to do with my wish for "certainty" (but I'm aware that inflation for my spending needs is somewhat uncertain, etc.) This is very much about the "personal" in personal finance.


One thing I've observed in this thread (and others) is the conversation keeps coming back to the return characteristics of 20 year stock returns. I kinda get the impression that you feel that's the only fact to consider? :)

If you were a financial advisor, and your client said "I have some concerns about stocks and taxation and my family and the future and blah, blah... and my financial goals can be met using TIPS to provide a large degree of certainty for future spending flows not just in years 1-19, but 20-30 as well." Would you tell your client, "You should not be using TIPS for more than 20 years. I mean, just look at the 20 year stock return distributions!" ?

Basically, what other factors do you think are relevant when deciding to invest for 20+ years?

Another thought... let's assume it is a bad idea to buy 20+ year TIPS, and you go ahead and buy stocks. When is it a good time to sell the stocks in order to lock in gains so as to ensure you won't lose the bet against 20+ year TIPS? After 1 year? 5 years? 10 years? Is this a "I'm committed to the 20 years no matter what?" Seems like if we're framing the initial investing question as "TIPS versus stocks based on past returns", why not ask that question as time goes by?
Your last question is a good one....

My thoughts are to treat the stock allocations ear-marked for years 21, 22, etc just like I would a 21, 22..., year TIPS....

Worst case in 20 years, history tells me I will at least be at par..... but there is an extremely high probability that I'll be presented with a very welcome decision along the way to capture/redeploy some profits....
Topic Author
CraigTester
Posts: 1743
Joined: Wed Aug 08, 2018 6:34 am

Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by CraigTester »

marcopolo wrote: Thu Jun 06, 2024 4:31 pm
CraigTester wrote: Wed Jun 05, 2024 2:26 pm Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004 (E.g. starting mth)
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
That's what US equities did in the past.
Have you abandoned all your hand wringing about valuations and lower expected return based on things like CAPE, etc?
Not that long ago, you were saying people would be crazy to be in the US market now due to historically high CAPE, now you are advocating for going all in to US stocks for 20 year time horizon?

Who are you, and what did you do to CraigTester?!?
yep, still happily running my model (but its beyond the scope of this thread)....

But independent of how someone chooses to make buy/sell decisions, rebalance, hold-forever, etc, a TIPS ladder at today's YTM's provides a nice backstop....

But as this thread attempts to highlight, the value of that backstop is arguably decreased at durations exceeding 20 years....

Are you holing any 20+ year TIPS...?
marcopolo
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by marcopolo »

CraigTester wrote: Thu Jun 06, 2024 4:40 pm
marcopolo wrote: Thu Jun 06, 2024 4:31 pm
CraigTester wrote: Wed Jun 05, 2024 2:26 pm Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004 (E.g. starting mth)
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
That's what US equities did in the past.
Have you abandoned all your hand wringing about valuations and lower expected return based on things like CAPE, etc?
Not that long ago, you were saying people would be crazy to be in the US market now due to historically high CAPE, now you are advocating for going all in to US stocks for 20 year time horizon?

Who are you, and what did you do to CraigTester?!?
yep, still happily running my model (but its beyond the scope of this thread)....

But independent of how someone chooses to make buy/sell decisions, rebalance, hold-forever, etc, a TIPS ladder at today's YTM's provides a nice backstop....

But as this thread attempts to highlight, the value of that backstop is arguably decreased at durations exceeding 20 years....

Are you holing any 20+ year TIPS...?
My point was why are you using historical US equity returns to make your argument for not investing in longer maturity TIPs if you believe forwards returns are going to be significantly lower due to high valuations?

Valuations are higher today then when you abandoned US equities in 2018, and they are even less justified with today's higher bond yields.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Kevin M
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by Kevin M »

We'll just end up having the same discussion we already had in the "what will you do if ..." thread. In short:
  • I have less confidence than you do that the future will resemble the past.
  • We don't have enough historical data on which to form reliable statistical conclusions on independent 20-year returns.
  • We can buy 20+ year TIPS for our relatively riskless portfolio, and still hold stocks in our risk portfolio.
  • With CAPM, we form a portfolio of risky assets combined with the riskless asset to match our desired tradeoff between expected return and risk for the holding period of interest.
  • The closest thing to a riskless asset for a 25-year holding period where the unit of account is real consumption is a 25-year TIPS; the lower the coupon, the less risk.
  • My "riskless asset" consists of a TIPS ladder from 2025-2047, so just a bit more than 20 years, which is at the optimistic end of my expected lifetime.
  • My risk portfolio consists of:
    • Stock index funds, somewhat tilted toward small and value.
    • Short term nominals; risky because of reinvestment risk, and to a lesser extent because of a mismatch with the unit of account of my liabilities, which is real consumption.
    • Way more TIPS maturing in 2025-2027 than I need for my ladder; risky because of reinvestment risk.
  • The tradeoff for me is not between stocks and TIPS, but between TIPS and bonds with durations that don't match my investment horizon, or with a unit of account that isn't real consumption.
If I make a calculation error, #Cruncher probably will let me know.
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CraigTester
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by CraigTester »

marcopolo wrote: Thu Jun 06, 2024 5:02 pm
CraigTester wrote: Thu Jun 06, 2024 4:40 pm
marcopolo wrote: Thu Jun 06, 2024 4:31 pm
CraigTester wrote: Wed Jun 05, 2024 2:26 pm Background

The question of this thread has arisen in various forms across different TIPS threads discussing 20+ year ladders, so I thought I'd put some numbers to it.

By example from below data, US stocks have exceeded a 0% 20-year CAGR 100% of the time; and exceeded a 3% 20-year CAGR, 85% of the time.

Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?


Jan 1905 - Jan 2004 (E.g. starting mth)
20 Yr Real US Stocks (Shiller Data)
(Div Reinvested)


CAGR , % Time
0.00% , 100%
1.00% , 97%
2.00% , 91%
2.20% , 89%
2.40% , 88%
2.60% , 87%
2.80% , 86%
3.00% , 85%
3.50% , 80%
4.00% , 74%
5.00% , 63%
6.00% , 49%
7.00% , 39%
8.00% , 32%
That's what US equities did in the past.
Have you abandoned all your hand wringing about valuations and lower expected return based on things like CAPE, etc?
Not that long ago, you were saying people would be crazy to be in the US market now due to historically high CAPE, now you are advocating for going all in to US stocks for 20 year time horizon?

Who are you, and what did you do to CraigTester?!?
yep, still happily running my model (but its beyond the scope of this thread)....

But independent of how someone chooses to make buy/sell decisions, rebalance, hold-forever, etc, a TIPS ladder at today's YTM's provides a nice backstop....

But as this thread attempts to highlight, the value of that backstop is arguably decreased at durations exceeding 20 years....

Are you holing any 20+ year TIPS...?
My point was why are you using historical US equity returns to make your argument for not investing in longer maturity TIPs if you believe forwards returns are going to be significantly lower due to high valuations?

Valuations are higher today then when you abandoned US equities in 2018, and they are even less justified with today's higher bond yields.
This thread is about determining whether TIPS, or a stock index, is the better component of a 21, 22, year "ladder rung"....

Based on data presented in the OP, I believe stocks are the smarter choice for populating rungs of a ladder beyond 20 years duration, but I'm very interested to hear why others might disagree....?

Ever since TIPS yields recently inflected positive, there has been a lot of discussion in this forum about investing in them, but IMHO, that discussion has decoupled from historical data when it comes to durations exceeding 20 years....

Do you have any thoughts on the question of this thread?
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Kevin M
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by Kevin M »

I didn't actually answer the "what YTM" question in my previous reply. I can answer that by sharing what I actually did.
  • The first TIPS I bought with a maturity of 20 years or more was the 2047, bought on 12/22/2023 at a yield of 1.98%.
  • Most TIPS I've bought in this maturity range were bought at a yield of 2% or more.
  • The lowest yield was 1.93% for the 02/15/44 on 12/28/2023
  • The highest yield was 2.46% for the 02/15/44 on 04/16/2024.
  • The average yield of my purchases in the >- 20 year maturity range is 2.09%.
If I make a calculation error, #Cruncher probably will let me know.
Wwwdotcom
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by Wwwdotcom »

avalpert1 wrote: Wed Jun 05, 2024 8:02 pm
dust wrote: Wed Jun 05, 2024 6:22 pm The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
It isn't necessarily market timing - if TIPS yields were to be at a rate high enough to provide your future spending needs you would have no reason to take any risk in stocks and could (maybe even should) move 100% to TIPS - the question of what that rate is isn't one of market timing it is one of identifying what your investment growth needs are for your goals.
The market determines yields. It's quite shakey whenever people make investing decisions based on the "growth" they need .. since there is no way to actually predict the future.
silvergga
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by silvergga »

Do you own 100% stocks and not own bonds (TIPs or nominal) unless bonds outperform stocks?

Because if you are not doing above, your question on comparing TIPs real return vs stocks real return does not make any sense.
avalpert1
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by avalpert1 »

Wwwdotcom wrote: Thu Jun 06, 2024 6:17 pm
avalpert1 wrote: Wed Jun 05, 2024 8:02 pm
dust wrote: Wed Jun 05, 2024 6:22 pm The question does not compute. VTI goes in the "stocks" bucket. TIPS go in the "bonds" bucket. Each of these buckets is sized without regard to current yields. Modifying your asset allocation based on current market conditions is a form of market timing.
It isn't necessarily market timing - if TIPS yields were to be at a rate high enough to provide your future spending needs you would have no reason to take any risk in stocks and could (maybe even should) move 100% to TIPS - the question of what that rate is isn't one of market timing it is one of identifying what your investment growth needs are for your goals.
The market determines yields. It's quite shakey whenever people make investing decisions based on the "growth" they need .. since there is no way to actually predict the future.
I hate to break it to you but all asset allocation decisions are at root based on the desired level of growth and the risk you are willing to take to achieve it - and that is not market timing (at least by any relevant meaning used by practitioners in this context) even though, of course, it is ultimately driven by market factors (all investing is of course). Not being able to predict the future sure does make it more difficult, but such is life.
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CraigTester
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by CraigTester »

Kevin M wrote: Thu Jun 06, 2024 6:17 pm I didn't actually answer the "what YTM" question in my previous reply. I can answer that by sharing what I actually did.
  • The first TIPS I bought with a maturity of 20 years or more was the 2047, bought on 12/22/2023 at a yield of 1.98%.
  • Most TIPS I've bought in this maturity range were bought at a yield of 2% or more.
  • The lowest yield was 1.93% for the 02/15/44 on 12/28/2023
  • The highest yield was 2.46% for the 02/15/44 on 04/16/2024.
  • The average yield of my purchases in the >- 20 year maturity range is 2.09%.
Thanks Kevin,

I remain very curious about the source of your conviction that future 20-year stock returns will underperform results of the last 100+ years?

Absent that belief, is it fair to agree that your above decision would not make "mathematical sense"?

But of course, if one accepts that belief, historical results become meaningless....and in turn, so does "math".
fulltilt
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by fulltilt »

CraigTester wrote: Thu Jun 06, 2024 6:12 pm ...
This thread is about determining whether TIPS, or a stock index, is the better component of a 21, 22, year "ladder rung"....

Based on data presented in the OP, I believe stocks are the smarter choice for populating rungs of a ladder beyond 20 years duration, but I'm very interested to hear why others might disagree....?

Ever since TIPS yields recently inflected positive, there has been a lot of discussion in this forum about investing in them, but IMHO, that discussion has decoupled from historical data when it comes to durations exceeding 20 years....

Do you have any thoughts on the question of this thread?
You haven't shown the data necessary to make a comparison in my mind because you haven't shown the range of possible outcomes. What is the range of outcomes I can expect? Variance matters.
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
BirdFood
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by BirdFood »

CraigTester wrote: Thu Jun 06, 2024 8:03 pm Thanks Kevin,

I remain very curious about the source of your conviction that future 20-year stock returns will underperform results of the last 100+ years?

Absent that belief, is it fair to agree that your above decision would not make "mathematical sense"?

But of course, if one accepts that belief, historical results become meaningless....and in turn, so does "math".
Why are you discussing TIPS, when your argument seems to be about bonds in general?

Do you hold any bonds whatsoever? Your argument would say that you should not.
fulltilt
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by fulltilt »

CraigTester wrote: Thu Jun 06, 2024 8:03 pm
Kevin M wrote: Thu Jun 06, 2024 6:17 pm I didn't actually answer the "what YTM" question in my previous reply. I can answer that by sharing what I actually did.
  • The first TIPS I bought with a maturity of 20 years or more was the 2047, bought on 12/22/2023 at a yield of 1.98%.
  • Most TIPS I've bought in this maturity range were bought at a yield of 2% or more.
  • The lowest yield was 1.93% for the 02/15/44 on 12/28/2023
  • The highest yield was 2.46% for the 02/15/44 on 04/16/2024.
  • The average yield of my purchases in the >- 20 year maturity range is 2.09%.
Thanks Kevin,

I remain very curious about the source of your conviction that future 20-year stock returns will underperform results of the last 100+ years?

Absent that belief, is it fair to agree that your above decision would not make "mathematical sense"?

But of course, if one accepts that belief, historical results become meaningless....and in turn, so does "math".
Let's pretend you were a prisoner and your captor offered you a choice. Choose between a) all the water you need to drink for a year or b) a coin toss: heads you get 95% of the water you need to survive for a year or tails 150% of the water you need to survive for a year. Which option would you choose?
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
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CraigTester
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by CraigTester »

fulltilt wrote: Thu Jun 06, 2024 8:24 pm
CraigTester wrote: Thu Jun 06, 2024 8:03 pm
Kevin M wrote: Thu Jun 06, 2024 6:17 pm I didn't actually answer the "what YTM" question in my previous reply. I can answer that by sharing what I actually did.
  • The first TIPS I bought with a maturity of 20 years or more was the 2047, bought on 12/22/2023 at a yield of 1.98%.
  • Most TIPS I've bought in this maturity range were bought at a yield of 2% or more.
  • The lowest yield was 1.93% for the 02/15/44 on 12/28/2023
  • The highest yield was 2.46% for the 02/15/44 on 04/16/2024.
  • The average yield of my purchases in the >- 20 year maturity range is 2.09%.
Thanks Kevin,

I remain very curious about the source of your conviction that future 20-year stock returns will underperform results of the last 100+ years?

Absent that belief, is it fair to agree that your above decision would not make "mathematical sense"?

But of course, if one accepts that belief, historical results become meaningless....and in turn, so does "math".
Let's pretend you were a prisoner and your captor offered you a choice. Choose between a) all the water you need to drink for a year or b) a coin toss: heads you get 95% of the water you need to survive for a year or tails 150% of the water you need to survive for a year. Which option would you choose?
If we extrapolate the data in the OP, the worst case scenario in your example is that you "still" get all the water you need to drink for a year.

Breaking-even in real terms after 20 years is not a "horrible" outcome....

The only scenario where stocks fail to break-even after 20 years, is a scenario that's Never happened within our 100+ years of historical data.

So if we're simply making up possible scenarios that have never happened, how bad do you predict 20 year returns will be....?

And why?
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Re: What is your Minimum 20+ year TIPS YTM req'd to replace VTI?

Post by whodidntante »

CraigTester wrote: Wed Jun 05, 2024 11:39 pm Per Fidelity, today's YTM for the 2045 TIPS is about 2.1%.

Per the return data in the OP, US stocks exceeded a 2.1% real CAGR over 20-yr periods, about 90% of the time; and the worst case was that they broke even.

And on average stocks returned around 6% real.

As a sub-question of this thread, Why would anyone (except perhaps insurance companies, etc) buy a 21 year TIPS today?
There are many reasons, but maximizing long-term expected returns would not be on offer. In that event, why wouldn't we short-fixed income by leveraging our equities?

It comes down to there are many models or schools of thought that feed into portfolio construction. Expected returns should be an important consideration, but there is a risk tradeoff as well. It's not always a game of maximizing expected returns. An investor might trade expected returns for a risk profile that seems more acceptable to them.

Another thing that I'll throw out is that every one of us is one event away from seeing their human capital destroyed. Probably the majority of people who become permanently disabled, or suffer a ruined reputation, fail to correctly predict the event. Successful investing has a luck factor, no matter how smart or ethical one is.
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by FoundingFather »

CraigTester wrote: Wed Jun 05, 2024 2:26 pm Question:

What is the minimum 20+ yr TIPS YTM you would require to use a TIPS in place of VTI for the 20+ year rungs of a "ladder"?

For instance, whereas I am very happy with my 1-20 year TIPS ladder, I have not yet been tempted to buy a 20+ year TIPS, but I suppose if they reached a certain level, I would not be able to resist.... But I'm not yet sure what that level would be....?
For me, my decision to put my fixed income allocation into a 28 year TIPS (longest duration with a low coupon was 2052, if I remember right) was based less on the YTM and more on a desire to not be 100% reliant on the stock market. Since I am around 25-30 years from my projected retirement, I wanted to lock in the best real rate at the time so that, whether inflation was bad or the stock market 'pulled a Japan', etc., I would have something safe.

I am not sure that I would have done it at 0-1% real, however, so I guess, to answer your question, it was the real YTM going over 2% that made it so appealing for me to make the change. When I finally pulled the trigger, I got a YTM of 2.3% or so.

Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by avalpert1 »

CraigTester wrote: Thu Jun 06, 2024 9:33 pm
fulltilt wrote: Thu Jun 06, 2024 8:24 pm
CraigTester wrote: Thu Jun 06, 2024 8:03 pm
Kevin M wrote: Thu Jun 06, 2024 6:17 pm I didn't actually answer the "what YTM" question in my previous reply. I can answer that by sharing what I actually did.
  • The first TIPS I bought with a maturity of 20 years or more was the 2047, bought on 12/22/2023 at a yield of 1.98%.
  • Most TIPS I've bought in this maturity range were bought at a yield of 2% or more.
  • The lowest yield was 1.93% for the 02/15/44 on 12/28/2023
  • The highest yield was 2.46% for the 02/15/44 on 04/16/2024.
  • The average yield of my purchases in the >- 20 year maturity range is 2.09%.
Thanks Kevin,

I remain very curious about the source of your conviction that future 20-year stock returns will underperform results of the last 100+ years?

Absent that belief, is it fair to agree that your above decision would not make "mathematical sense"?

But of course, if one accepts that belief, historical results become meaningless....and in turn, so does "math".
Let's pretend you were a prisoner and your captor offered you a choice. Choose between a) all the water you need to drink for a year or b) a coin toss: heads you get 95% of the water you need to survive for a year or tails 150% of the water you need to survive for a year. Which option would you choose?
If we extrapolate the data in the OP, the worst case scenario in your example is that you "still" get all the water you need to drink for a year.

Breaking-even in real terms after 20 years is not a "horrible" outcome....

The only scenario where stocks fail to break-even after 20 years, is a scenario that's Never happened within our 100+ years of historical data.

So if we're simply making up possible scenarios that have never happened, how bad do you predict 20 year returns will be....?

And why?
The why is simple - because the notion that a single realized 100+ year string of data represents the universe of possibilities makes no sense based on theory or practice. We have data from other markets where they did fail to break-even after 20 years, why ignore those? And even if we didn't, it still is ridiculous to suppose that we have experienced all possible sequences in such a short time.
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by BirdFood »

CraigTester wrote: Thu Jun 06, 2024 9:33 pm If we extrapolate the data in the OP, the worst case scenario in your example is that you "still" get all the water you need to drink for a year.

Breaking-even in real terms after 20 years is not a "horrible" outcome....

The only scenario where stocks fail to break-even after 20 years, is a scenario that's Never happened within our 100+ years of historical data.

So if we're simply making up possible scenarios that have never happened, how bad do you predict 20 year returns will be....?

And why?
100 years of one country's stocks just doesn't strike me as enough data points to declare an impossibility...
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CraigTester
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by CraigTester »

Thanks for multiple good responses above as I ponder the question of the thread. (Hopefully others also find the discussion interesting as I know I'm not the only one thinking about this question.....)

Current Reactions:

1) I share the desire to maintain a position in something (e.g. fixed income) other than stocks, but have so far done so with durations under 20 years. (for reasons stated)

2) Could we get a Japan scenario...? Absolutely, and that's why I actually opt for VT instead of VTI, but didn't want to unintentionally ignite another "int'l vs US" discussion.... But it's interesting to note that including international generates a very similar set of outcomes as shown by the "Siamond" chart already posted....

3) Multiple people seem to genuinely believe that 20 year future stock returns could do something worse than break-even.... I share this concern for any single country, but find it very difficult to imagine a future where VT would actually fail to at least break-even over a 20 year period... A scenario like this would certainly be accompanied by some pretty ugly events, that might also weigh negatively on TIPS repayments, CPI calculations, etc...

On balance at todays 2.1% YTM's being offered for 20+ yr TIPS, I am not yet personally tempted, but I still can't tell you what would make me jump...6% would be a no-brainer...5% yep....4% yep....3% maybe....?
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Re: Why (or at what YTM) does it make sense to buy a 20+ year TIPS...?

Post by BirdFood »

CraigTester wrote: Thu Jun 06, 2024 10:44 pm 3) Multiple people seem to genuinely believe that 20 year future stock returns could do something worse than break-even....
Maybe you already said--what are the 19 year numbers? 18, 17, 16? Is 20 years the first point where it breaks the "inconceivable!" barrier?
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