Have you changed your Asset Allocation due to TIPS?

[Dufus]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

[jebmke]

I don't hold a Tips ladder but I do hold individual Tips. It was not a factor in allocation decisions.

However, now that I am on my pension and SS, I am letting our portfolio go to seed. I no longer re-balance on the up side. All our equity is in taxable so I have no reason to take the tax hit so we will just let it rip. If there is a significant down tick -- say 60-70% in equity I might consider re-balancing INTO equity; will have to think about that. This change is unrelated to holding Tips

[Richard1580]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

If you are drawing SS and have a LMP of TIPS to cover the next 10-15 years, I would certainly be inclined to keep the rest of my funds in equities - adding to the end of the TIPS ladder every year. Assuming your personal rate of inflation is close to the CPI-U.

[stevewolfe]

Yes. We're conservative investors and we were 40% stocks (with 70% US and 30% international) and 60% fixed income before we built an LMP ladder from projected early retirement to SS (covering 13 years). We decided to treat the LMP as an income stream and separate it from the rest of our portfolio. For the Risk portion of the portfolio (the remainder not in the LMP), we increased stocks to 50% (same US / international split) and reduced fixed income to 50%. This was mostly done for us by the separation of the LMP funds from the rest of the portfolio (which were in I-Bonds, Vanguard short term inflation bond fund (VTAPX) and US Treasury money market).

[exodusing]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

We're in a similar position. I figure once expenses are covered with safe inflation adjusted assets, it doesn't matter what you do with the rest of your portfolio. Therefore our plan is to leave well enough alone.

I suppose it depends on what you'd do with the extra money and how having more, or less, would affect you.

[jebmke]

I suppose it depends on what you'd do with the extra money and how having more, or less, would affect you.

This important point should not be overlooked.

Nearly our entire portfolio will eventually end up in the hands of charities so any risk or lack thereof is born by them. My objective is to spend as little time thinking about it or acting on it as possible, manage the cost (including and especially taxes) as efficiently as possible and be reasonably diversified. Once those conditions are met, I figure the portfolio will fairly compensate us/them for the risk assumed, no matter what that is.

[gavinsiu]

Not really, I am still accumulating. My TIPS bascially replaces some of the nominal bond fund I have, so my bond allocation remain the same.

For my mom, I replaced a good chunk of her cash with a rolling TIPS ladder to replace her cash with bond allocation. She was fearing inflation and this seemed the way to go. Holding the individual bonds is mostly psychological.

If I were to build a collapsing bond ladder to handle 30 years of income, I would probably keep more fixed income for the first few years to see if the ladder is working out. Assuming it works out, I would probably reserve some cash and bond for stuff like one time lumpy expenses that the bond ladder may not cover and put the rest into stocks. Say I ran out the runway, my other portfolio will hopefully be larger 30 years later to handle income until I pass away.

[dbr]

Whether the fixed income includes individual TIPS or not is not likely to significantly affect your need, ability, and willingness to take risk between stocks and bonds, so the asset allocation, stock/bond, would not change.

If you buy a ladder of individual TIPS to cash out year by year for income it would make more sense to tally that as income and take the TIPS out of the portfolio asset allocation. It would then be a question individual preference and judgement as to what the need, ability, and willingness applied to the remaining portfolio would be.

If I personally were doing something like that I expect the result would be to choose a higher allocation to stocks in the remaining portfolio.

[MCR]

Not really, I am still accumulating. My TIPS bascially replaces some of the nominal bond fund I have, so my bond allocation remain the same.

For my mom, I replaced a good chunk of her cash with a rolling TIPS ladder to replace her cash with bond allocation. She was fearing inflation and this seemed the way to go. Holding the individual bonds is mostly psychological.

If I were to build a collapsing bond ladder to handle 30 years of income, I would probably keep more fixed income for the first few years to see if the ladder is working out. Assuming it works out, I would probably reserve some cash and bond for stuff like one time lumpy expenses that the bond ladder may not cover and put the rest into stocks. Say I ran out the runway, my other portfolio will hopefully be larger 30 years later to handle income until I pass away.

I'm taking the same approach. We've got a third of our bond allocation in TIPS -- mostly individual TIPS that we'll hold to maturity. Using a barbell approach, not a ladder. I'm also still accumulating.

[IDpilot]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

Nope. Prior to building a rolling ten-year TIPS ladder I was 50/50 stocks/bonds and still am. The TIPS are just part of the 50% bonds. That ten-year rolling ladder has since been redeployed as 30-year liability matching one.

[dcabler]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

I took all of the bond funds previously held during accumulation and converted them to a TIPS income stream. Stocks remain unchanged. I don't rebalance between stock and TIPS so now they're going to do whatever they do. Which is OK because once you're thinking about TIPS in terms of generating a known income stream, its market value no longer matters.

Cheers.

[watchnerd]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

Once I had my TIPS ladder, I got rid of bond funds that had nominal Treasuries in them (like Total Bond).

[sycamore]

For those of you who own individual TIPS, have you modified your previous asset allocation after building a TIPS ladder?

I'm probably going to gradually increase equities now that between SS and TIPS we have our spending covered.

I took all of the bond funds previously held during accumulation and converted them to a TIPS income stream. Stocks remain unchanged. I don't rebalance between stock and TIPS so now they're going to do whatever they do. Which is OK because once you're thinking about TIPS in terms of generating a known income stream, its market value no longer matters.

Cheers.

I've done the same thing.

Stocks have done very well lately and I left my risk portfolio alone. And thus my stock AA has grown beyond what I used to keep it at. But when a downturn comes, my stock exposure will likely drop too. I'm okay with larger swings now than I was before because more of my spending needs are covered by TIPS and future SS.

I haven't computed my ladder's average duration. Off the top of my head, it's probably a few years longer than what my bond fund was/is at. So in one sense I have changed my fixed income AA to have greater exposure to term risk. But that's a moving target - as I age, I may or may not extend the ladder (by swapping stocks to bonds, even if just it's the stock dividends).

The bond price volatility is less of a problem for me now -- I plan to hold my TIPS to maturity and spend the proceeds and coupons.

[TipsQuestions]

Not yet, in terms of my stock/bond mix - bond funds were sold to fund the ladder. If TIPS rates went north of 3% though I'd seriously consider it.

[TheTimeLord]

I guess my answer would be yes. I have a TIPS ladder that currently extends to age 85 and a Risk portfolio, which is made up of equities and a set amount of shorter term treasuries (generally under 2 years) to assist with any lumpy expenses that appear. So essentially you can say my AA is floating or I don't have an AA. That said with this year's substantial gains I have taken the opportunity to increase the size of the rungs in my TIPS ladder.

[beyou]

I view this the same way Target Date funds view it.
Vanguard includes TIPS in their 2025 fund but none of the longer dated funds.
This to me is reflecting the idea that when younger you get some form of inflation protection from equities (at least against moderate inflation). But as you age, if you reduce equities in your AA and go to all nominal bonds, you lose your ability to keep pace with the usual level of inflation.

So it's not that TIPS change my AA, it's that I added TIPS BECAUSE OF my AA.
I planned many years ago before recent inflation uptick, to replace SOME of my equity AA with TIPS gradually, just as the Target Date funds do.

I think the question you pose is really more one of "if I use liability matching and covered my expenses should I modify my AA and/or should I include the LMP in my portfolio for setting AA" ? I don't use the concept of LMP with individual bonds. I am just trying to live within our means for interest, dividends and my spouse still working part time. When she stops working will use something like the 4% rule. I simply don't want to try to guess the timing and amount of my expenses for the next 2 decades.

[dcabler]

I guess my answer would be yes. I have a TIPS ladder that currently extends to age 85 and a Risk portfolio, which is made up of equities and a set amount of shorter term treasuries (generally under 2 years) to assist with any lumpy expenses that appear. So essentially you can say my AA is floating or I don't have an AA. That said with this year's substantial gains I have taken the opportunity to increase the size of the rungs in my TIPS ladder.

Very similar except I currently have our TIPS ladder extending to our mid 90's. Risk portfolio is 100% stock. There are some side accounts, one of which has a very particular purpose and the other being I-bonds which start to mature in our mid 90's and are available possibly for multiple purposes if needed. Like you, when stocks have some outsized gains, there will be considerations to either increase the length of time the ladder produces income or to increase the payouts from the ladder, or even both. Story still to be written...

Cheers.