What is your target allocation to TIPS? {Poll}

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

What is your target allocation to TIPS [as part of bond holdings]?

10%
52
16%
10%
52
16%
20%
56
17%
20%
56
17%
40%
18
5%
50%
76
23%
60%
5
2%
70%
1
0%
80%
6
2%
90%
4
1%
100%
4
1%
 
Total votes: 330

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Petrocelli
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What is your target allocation to TIPS? {Poll}

Post by Petrocelli » Sat May 22, 2010 10:20 am

[The poll was broken by the forum software upgrade and cannot be fixed - admin LadyGeek]

Of your bond allocation, what is your target allocation to TIPS? Round up or down as you see fit.
Petrocelli (not the real Rico, but just a fan)

GammaPoint
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Post by GammaPoint » Sat May 22, 2010 10:43 am

At 0% for me. I'm 27 so inflation isn't the biggest concern. I plan on reading TFB's TIPs book this fall though and will reevaluate my situation then.

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Post by TheEternalVortex » Sat May 22, 2010 10:48 am

50%

Pretty sure the younger you are, the bigger a concern inflation should be.

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Doc
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Post by Doc » Sat May 22, 2010 10:52 am

I answered your poll but my allocation is based in real dollar terms not as a percent. I don't believe that many people think of their allocation this way. It makes sense to me to consider TIPS as a long term emergency fund where the emergency is in the market not my personal life.
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natureexplorer
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Post by natureexplorer » Sat May 22, 2010 10:56 am

I hold TIPS, but I don't have a target allocation for them.

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Post by sscritic » Sat May 22, 2010 11:10 am

I don't have a target. Right now, they are roughly 1/3 of my actual bonds and 1/4 of my "bonds" (cash, bonds, and TIAA Traditional).

GammaPoint
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Post by GammaPoint » Sat May 22, 2010 11:14 am

TheEternalVortex wrote:50%

Pretty sure the younger you are, the bigger a concern inflation should be.
Really? Salaries typically increase with inflation whereas in retirement you're portfolio has to match and beat inflation, no?

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Post by Ginaz_Adept » Sat May 22, 2010 11:20 am

Voted 10% but in reality is 6%.

Edit: It's 6% of my total portfolio, but 20% of the bonds.

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Post by dbr » Sat May 22, 2010 11:23 am

GammaPoint wrote:
TheEternalVortex wrote:50%

Pretty sure the younger you are, the bigger a concern inflation should be.
Really? Salaries typically increase with inflation whereas in retirement you're portfolio has to match and beat inflation, no?
If you retire with fixed income sources such as a non-cola'd defined benefit pension, some other income source has to deliver far more than constant inflation indexed -- or one has to see how real income is actually planned to fall during retirement.

As an example, one of the classic violations of the 4% + inflation scenario is relying on a portfolio to both supply real income plus supply lost real income of the fixed pension.

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Post by Alex Frakt » Sat May 22, 2010 11:37 am

0%. I don't see the point of TIPS for those of us still several years away from retirement. My reasoning is simple, the point of TIPS is to reduce a certain risk relative to nominal bonds. If risk and expected returns are correlated, then the expected returns of lower-risk TIPS must be lower than nominal bonds with otherwise similar characteristics. Since fluctuations in the real income from bonds are immaterial while we are in the accumulation stage, it doesn't make sense to me to give up the (expected) returns advantage of nominal bonds.

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Opponent Process
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Post by Opponent Process » Sat May 22, 2010 12:19 pm

Alex Frakt wrote:0%. I don't see the point of TIPS for those of us still several years away from retirement. My reasoning is simple, the point of TIPS is to reduce a certain risk relative to nominal bonds. If risk and expected returns are correlated, then the expected returns of lower-risk TIPS must be lower than nominal bonds with otherwise similar characteristics. Since fluctuations in the real income from bonds are immaterial while we are in the accumulation stage, it doesn't make sense to me to give up the (expected) returns advantage of nominal bonds.
this could be right, but it seems like TIPS have had higher risk/return compared to TBM since they've been available (I'm just looking at a $10K growth chart to make this maybe-too-simple observation).

I do think young folks need inflation-protection; I don't like speculating about the future at all, including employment compensation trends. if someone could guarantee me an inflation-adjusted salary for as long as I want it, I might be persuaded to drop TIPS. alternatively, you could argue that we primarily use equities for long-term inflation protection in our portfolios.

my guess is the TBM/TIPS split may be as inconsequential as the TSM/TISM split. I just don't want to take that risk, so I split both 50/50.
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House Blend
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Post by House Blend » Sat May 22, 2010 12:53 pm

I think Vanguard's TR funds don't have TIPS unless you pick 2010 or 2005. The 2010 flavor is about 40% TBM and 10% TIPS.

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Post by jeff mc » Sat May 22, 2010 12:56 pm

i'm 50%. (other 50% BND - tbm)

changed poll question to clear up that this is % of bonds, not total %

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Post by MWCA » Sat May 22, 2010 12:59 pm

40% few years out before no job income. I guess that is called retirement ;)
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Post by tetractys » Sat May 22, 2010 1:08 pm

The pole was changed right as I voted 10%, which would be about 40% of my 25% bond allocation, and actually a lot less because my inflation-protected allocation includes ibonds.

For awhile I was going along with the 50/50 nominal/inflation indexed idea; but was never comfortable with it. It may be good for retirees, which I'm not. Recently I've gone back to my prior preference of inflation indexed securities being 10% of my entire portfolio.

Best regards, Tet
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Rob54keep
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Post by Rob54keep » Sat May 22, 2010 1:09 pm

I currently hold less than 10% TIPS (bond only allocation) :shock: but my current asset allocation proceeds are directed towards 25% TIPS (my goal)

TigerNest
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Post by TigerNest » Sat May 22, 2010 1:15 pm

They don't provide enough after-tax return for me.

I'm quite far from retirement, so I value potential growth much more than capital preservation.

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Post by Alex Frakt » Sat May 22, 2010 1:28 pm

Opponent Process wrote:
Alex Frakt wrote:0%. I don't see the point of TIPS for those of us still several years away from retirement. My reasoning is simple, the point of TIPS is to reduce a certain risk relative to nominal bonds. If risk and expected returns are correlated, then the expected returns of lower-risk TIPS must be lower than nominal bonds with otherwise similar characteristics. Since fluctuations in the real income from bonds are immaterial while we are in the accumulation stage, it doesn't make sense to me to give up the (expected) returns advantage of nominal bonds.
this could be right, but it seems like TIPS have had higher risk/return compared to TBM since they've been available (I'm just looking at a $10K growth chart to make this maybe-too-simple observation).
Growth charts are not particularly meaningful without historical context. When TIPS were first introduced, investors as a whole weren't quite sure what to make of them and so prices were low and yields high. Since then people have become comfortable with TIPS and so the few early holders have been the benefit of a one-time price rise. They've also been the beneficiary of a lot of angst about the so-far chimerical inflation in the media and on the internet (remember all the hyperinflation threads here in mid-'08 and again last fall?). The net result is high volatility and high returns for treasuries. But it's not sustainable, since the price increase has come at the expense of cutting the real yield in half, to a level that's well under the historical real yield of nominals.
Opponent Process wrote:I do think young folks need inflation-protection; I don't like speculating about the future at all, including employment compensation trends. if someone could guarantee me an inflation-adjusted salary for as long as I want it, I might be persuaded to drop TIPS. alternatively, you could argue that we primarily use equities for long-term inflation protection in our portfolios.
Nominal bonds work fine for long-term inflation protection with real annual returns since 1926 of around 2 1/4% (which is around 50bp greater than the current TIPS real yield). The problem is that they may take a few years to catch up to an inflation spike. This makes TIPS preferable when you need to live off the income, but doesn't really come into the picture if you are 10+ years away from retirement.
Opponent Process wrote:my guess is the TBM/TIPS split may be as inconsequential as the TSM/TISM split.
Probably even less important. I'm not going to try to talk someone out of holding TIPS, I'm only explaining why I don't hold them. Yet.

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Post by tfb » Sat May 22, 2010 5:27 pm

Alex Frakt wrote:0%. I don't see the point of TIPS for those of us still several years away from retirement. My reasoning is simple, the point of TIPS is to reduce a certain risk relative to nominal bonds. If risk and expected returns are correlated, then the expected returns of lower-risk TIPS must be lower than nominal bonds with otherwise similar characteristics. Since fluctuations in the real income from bonds are immaterial while we are in the accumulation stage, it doesn't make sense to me to give up the (expected) returns advantage of nominal bonds.
Inflation does not know if the nominal bond investor is young or old. It will knock down nominal bonds the same way. If you have nominal bonds at all, you are taking inflation risk. As Larry has shown many times, the excess expected return from nominal bonds is very small, sometimes negative. It makes taking inflation risk not so worth it.
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Post by jheez » Sat May 22, 2010 5:28 pm

I'm 50%, but I would be 100% if there wasn't a liquidity problem with TIPS. There's a good reason to invest in TIPS. First you can go out on the yield curve with little risk. As a young person, I could go out to the 20yr or 30yr which were both yielding 2.2% just a few weeks ago. That is good enough for me. It matches the historical average for nominals.

As for the argument that working people don't need inflation protection...even if your wage keeps up with inflation, that doesn't mean your portfolio will! You do have working years to catch up and save more, but why play catch up if you don't have to?!

10 yr treasury = 3.24%
10 yr TIPS = 1.3%+inflation (3% average?)

According to that the markets are expecting inflation to be less than 2% over the next 10 years. I kind of doubt that is going to be the case, unless the unemployment numbers don't get better in the next 10 years.

The liquidity problem in TIPS showed up in 2008. That is why I'm only 50% TIPS. I keep the other 50% in government debt.

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Post by gkaplan » Sat May 22, 2010 5:34 pm

Currently, I use the G Fund for my entire fixed income allocation and my Vanguard Roth IRA for my entire equity allocation. When I retire, I'll probably roll over my TSP to Vanguard (unless I annuitize some or all of it), and then use the Vanguard TIPS fund for my entire fixed income allocation.

This is a long way of saying that I'm not sure how to answer the poll question. Right now, my TIPS allocation is zero percent but only because I have access to the G fund.
Gordon

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Post by expat » Sat May 22, 2010 5:48 pm

GammaPoint wrote:
TheEternalVortex wrote:50%

Pretty sure the younger you are, the bigger a concern inflation should be.
Really? Salaries typically increase with inflation whereas in retirement you're portfolio has to match and beat inflation, no?
I believe salaries have been stagnant for the last 10 years.

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Post by MWCA » Sat May 22, 2010 5:59 pm

expat wrote:
GammaPoint wrote:
TheEternalVortex wrote:50%

Pretty sure the younger you are, the bigger a concern inflation should be.
Really? Salaries typically increase with inflation whereas in retirement you're portfolio has to match and beat inflation, no?
I believe salaries have been stagnant for the last 10 years.
That depends on what field you are in. Medical field they have went up pretty well.
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Post by chelsea » Sat May 22, 2010 6:21 pm

50 percent, based on advice from this forum.

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steve roy
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Post by steve roy » Sat May 22, 2010 6:47 pm

I'm 60% bonds, 40% stocks.

About 40% of the 60% is in TIPS, with the balance in short term federal and treasuries. A teensy bit in foreign bonds and short term munis.

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Jake46
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Post by Jake46 » Sat May 22, 2010 6:54 pm

50% TIPS 50% Total Bond

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Post by Call_Me_Op » Sat May 22, 2010 7:27 pm

Right now I'm at 9%. I see no problem with TIPS being up to 1/2 of your bond allocation.

-Op
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Maestro G
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Post by Maestro G » Sat May 22, 2010 7:29 pm

My Portfolio:

33.3% Global Equity (over weighted to VBR & VWO with a small portion (3%) currently to GLD here as well)

33.3% Long Term Tips (LTPZ - 15+yrs)

33.3% Cash (this includes about 50% in SHY and the other 50% in I-bonds and savings/checking currently @ 1.50% in a credit union.

After much consideration, this is my "split the difference" nod to conventional Boglehead, HB PP, Zvie Bodie, Larry Swedroe and Nassim Taleb.

So, long term TIPS are 50% of my allocation to fixed income.

Health allowing, I do not ever plan on actually retiring in the conventional sense. I love what I do:!:

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Post by jeff mc » Sat May 22, 2010 7:31 pm

Call_Me_Op wrote:Does anyone have any idea why I cannot respond to polls?
1) what's your browser?
2) what's your OS?
3) what's your hardware? (laptop, blackberry, iPad, etc)
4) what's your ad-blocker, pop up blocker, spyware, etc?
5) what's your connection and connection speed?

anything out of the ordinary w/ any of them? safari on an iPad on ubuntu dialup would probably not work.

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Post by Call_Me_Op » Sat May 22, 2010 7:34 pm

Jeff,

For some reason, the problem corrected itself after a time delay. (???)

Thanks for the reply.
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Post by Grt2bOutdoors » Sat May 22, 2010 7:59 pm

25% in Tips, 50% Total Bond, 25% cash.

MnD
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Post by MnD » Sat May 22, 2010 9:16 pm

0% because we have access to the TSP G fund.

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Post by stevewolfe » Sat May 22, 2010 9:32 pm

25% of bond portfolio target, but currently at 7.5% (actually that 7.5% is invested in I-Bonds). Right now I had shifted the rest to the stable value fund (SEC yield 2.76%) in my 401(k). I had been up 2.303% for the year on my TIPS when I sold them - wasn't trying to time, but lately they have had a strong run up (last week excluded).

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Post by FrugalInvestor » Sat May 22, 2010 9:40 pm

I'm retired (early) and all of my income is produced by my portfolio. I will add social security in a few years. 50% of my bonds are in Vanguard TIPS fund only because I couldn't come up with any particular reason to make it any other percentage.
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Dale_G
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Post by Dale_G » Sat May 22, 2010 10:57 pm

73 years old and zero TIPs. I'll self insure with nominal bonds thank you.

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Post by conundrum » Sat May 22, 2010 11:48 pm

With an overall allocation of 40% equity and 60% fixed income we have about 25% of our fixed income in individual TIPS with the remainder of our fixed income split between intermediate term munis and limited term munis. Our entire tax deferred space (only 15% of our portfolio) is filled with TIPS. If tax deferred space allowed we would have 50% of our fixed income in TIPS.

Drum :lol:

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Post by Eureka » Sun May 23, 2010 3:45 am

The poll numbers are intriguing. As of 0840 UTC Sunday, and despite all the TIPS talk around here, 25 percent say they have zero as a target, and 23 percent say they have 50 percent as a target.

Virtually no one wants more than 50 percent.

My target is 10 percent, but I actually own 1.8 percent.

We need a poll on actual allocation to TIPS.

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theac
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Post by theac » Sun May 23, 2010 5:31 am

I have 40% presently in TIPS (tIRA), balance of fixed income in Total bond (ROTH), and plan to up my TIPS to 50%.

My fixed income is excluding cash holdings.
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Post by SpringMan » Sun May 23, 2010 8:27 am

VAIPX is slightly less than 20% of our fixed income. The rest of our fixed income is in TBM, GNMA, Short Term Invest Grade, Short Term Federal, and the bonds in Wellesley Income.
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Post by The Wizard » Sun May 23, 2010 9:16 am

I don't know enough right now to put part of my bond $$ into TIPS.
Following note from VIPSX:
Note about June and September 2009 distributions: The Fund had no net income to distribute for the second and third quarter of 2009 because negative inflation adjustments offset the "regular" interest income (coupon interest and amortization) on the securities held by the Fund.

Are TIPS more helpful during the payout phase of the investment lifecycle?
Right now I think I'm happy with VBIIX in my IRA. Growth over 1,3,5,10 year periods seems quite similar for VBIIX and VIPSX.
What's the rationale for VIPSX over VBIIX (if any)?

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Post by Beagler » Sun May 23, 2010 9:28 am

The Wizard wrote:I don't know enough right now to put part of my bond $$ into TIPS.
Following note from VIPSX:
Note about June and September 2009 distributions: The Fund had no net income to distribute for the second and third quarter of 2009 because negative inflation adjustments offset the "regular" interest income (coupon interest and amortization) on the securities held by the Fund.
To paraphrase one of the other posters, I want my bonds to pay me a routine income. Share liquidation seems the only way to live off income from VIPSX during the months you've listed above.
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Post by GammaPoint » Sun May 23, 2010 10:25 am

Beagler wrote:
To paraphrase one of the other posters, I want my bonds to pay me a routine income. Share liquidation seems the only way to live off income from VIPSX during the months you've listed above.
Does the share price go up too, or are you really getting nothing out of it during those time periods? That seems like it might be dangerous for those in retirement, since doesn't inflation for the elderly behave differently than one for the younger consumer (extra health care vs food or whatever).

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Post by BlueEars » Sun May 23, 2010 10:31 am

The original poll question assumes one has a fixed target allocation. But some will choose to invest in TIPS only if the yields are above or at historical real rates. That's my choice anyway and so most of my FI is currently in short term bond funds.

I think the poll should have included a "variable" category or maybe "depends on rates" selection.

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Post by Sheepdog » Sun May 23, 2010 10:41 am

If I included my I Bonds, which is 22% of my total investments, my percent of inflation protected would be several times higher than with just TIPS.
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Post by ruralavalon » Sun May 23, 2010 10:43 am

We are 0% TIPS.

With all the TIPS talk around here, I am surprised that 24% of persons responding to the poll hold none and that only 22% hold the often recommended 1/2 of the bond allocation in TIPS.
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BlueEars
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Post by BlueEars » Sun May 23, 2010 10:57 am

Sheepdog wrote:If I included my I Bonds, which is 22% of my total investments, my percent of inflation protected would be several times higher than with just TIPS.
Good point, our Ibonds (inflation protected) are 13% of our bonds. The TIPS are currently only 4% and will mature in 2011. The rest is short term bonds which offer some inflation protection because of the short term.

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Post by grabiner » Sun May 23, 2010 11:01 am

The Wizard wrote:I don't know enough right now to put part of my bond $$ into TIPS.
Following note from VIPSX:
Note about June and September 2009 distributions: The Fund had no net income to distribute for the second and third quarter of 2009 because negative inflation adjustments offset the "regular" interest income (coupon interest and amortization) on the securities held by the Fund.
What the fund pays out is not directly related to your returns; it is determined by tax laws.

Example: You hold a $10K TIPS yielding 2%. Inflation is 3%. You receive $200 in dividends, and the face value of the TIPS goes up to $10,300. You owe tax on $500. If the fund holds this TIPS, it must pay out $500 in taxable distributions. If you have the fund or TIPS in an IRA, the taxes don't matter and you earned 2% above inflation; you have to reinvest the $300 value of the inflation adjustment to keep your principal growing at inflation.

Example: You hold a $10K TIPS yielding 2%. Deflation is 2%. You receive $200 in dividends, and the face value of the TIPS drops to $9800. You owe no tax despite the $200 in your bank account. If the fund holds this TIPS, it pays out nothing in taxable distributions, but you still earned 2% above inflation.
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Post by chaz » Sun May 23, 2010 11:53 am

30%
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Post by chaz » Sun May 23, 2010 11:56 am

30%
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Tall Grass
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Post by Tall Grass » Sun May 23, 2010 12:40 pm

I went from about 15% to 0% about a year ago...probably will never own them again as I just use my portfolio earnings for supplemental income. I am all Short and Intermediate term bond funds now, indexed and investment-grade...
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