smectym wrote: ↑
Sat Mar 24, 2018 12:13 am
Absurd. I have plenty of I-bonds and still have worries. One of those worries is that I-bond returns have been ghastly since 666 vs. SPX. Over that period—by now a rather extended period—which investment has done a better job of inflation protection?
Perhaps the next decade will see better results for the magical I-bond. Perhaps. Let’s hope so. Some of those who drank the I-bond/TIPS Kool-Aid don’t have many (any?) decades left to find out.
A few thoughts...
1) In April of 2011 when this was posted, 30 year tips were trading at real yields of close to 2%. So if one had bought then one would have gotten a strong price return on top of the real yield and inflation.
for example the 30 year tips issued in feb of 2011 (due feb 2014) were issued at a real yield of 2.125% and are trading at 125 today.
So that works out to a 3.2% annual price return on top of inflation of say 2% and the real yield of 2%. So something like at 7% annual return. Not as good as the S&P 500 obviously but not terrible. Looking at the 15+ years tips etf LTPZ ETF, if you annualize the returns from 2011 to today (march 23rd 2018) one gets an annualized return (CAGR) of 4.7%. Again not S&P 500 type returns but still a comfortable return above inflation.
http://performance.morningstar.com/fund ... ture=en_US
2) The original post focused on Bodie's paper and talked about combining the TIPS ladder with LEAPS, S&P 500 Equity options. That strategy would obviously have paid off very handsomely particularly with the recent run up in equities. It's hard to post returns on it since there is not a fund one can look up on morningstar etc. and there is not good historical price information on S&P 500 leaps.
3) But all of that is backward looking. The question obviously is what to do now. My current plan is to follow a 3-legged-stool approach to replicate 50% of salary in retirement:
a) 1st leg = 1/6 of salary = Social Security
b) 2nd leg = 1/6 of salary = Employer Pension /Tips/I-bond ladder
c) 3rd leg = 1/6 of salary =Risk Portfolio using 3.5% safe withdrawal rate (SWR) ---> Portfolio size = 4.75 x Salary. So for example if one's salary is $100k one would need a $475k Risk portfolio. For asset allocation for this i am roughly following Swensen.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen