TIPS ladder using Schwab ladder builder?

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Topic Author
CloseEnough
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TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

Has anyone used the Schwab fixed income "ladder builder" to create a bond ladder exclusively loaded with TIPS?

When I go into the ladder tool, it is not clear to me how I would select TIPS to load the various rungs.

If the ladder builder can be used in this way, it would seem to me a relatively simple approach to build a 5 year ladder. I am considering to move a portion of fixed income in a tax deferred account from short and intermediate bond funds into TIPS. Another option would be to try to duration match with two TIPS funds, from what I've read here. Ultimate goal is to blend some inflation protection income for expenses over the next 5-6 years.

Any inputs appreciated. Thanks.
toddthebod
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Re: TIPS ladder using Schwab ladder builder?

Post by toddthebod »

I'm on my phone now so I can't check, but I'm pretty sure you cannot do TIPS in the ladder builder.
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CloseEnough
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Re: TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

toddthebod wrote: Thu Aug 04, 2022 7:33 am I'm on my phone now so I can't check, but I'm pretty sure you cannot do TIPS in the ladder builder.
Thanks. I have played around with it, and suspect you are correct. I also asked Schwab through a "chat" (not helpful, didn't know, suggested calling FI specialist). I wonder why it is not available as an option. Perhaps somehow with TIPS it doesn't allow the certainty of calculating what nominal returns would be over the ladder period, although my understanding of TIPS and bonds is not extensive.
toddthebod
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Re: TIPS ladder using Schwab ladder builder?

Post by toddthebod »

CloseEnough wrote: Thu Aug 04, 2022 7:41 am
toddthebod wrote: Thu Aug 04, 2022 7:33 am I'm on my phone now so I can't check, but I'm pretty sure you cannot do TIPS in the ladder builder.
Thanks. I have played around with it, and suspect you are correct. I also asked Schwab through a "chat" (not helpful, didn't know, suggested calling FI specialist). I wonder why it is not available as an option. Perhaps somehow with TIPS it doesn't allow the certainty of calculating what nominal returns would be over the ladder period, although my understanding of TIPS and bonds is not extensive.
There are huge gaps in available maturities for TIPS. They are auctioned in 5-, 10-, and 30-year versions, and because of historical changes, there aren't even any maturing for a big chunk of the 2030s.

Meanwhile, there are nominal bills/notes/bonds maturing pretty much every month. It's just very messy to build a TIPS ladder.
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CloseEnough
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Re: TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
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vineviz
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Re: TIPS ladder using Schwab ladder builder?

Post by vineviz »

CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
I don't think it's as dire as all that.

For a short ladder like the one you are contemplating, it really wouldn't require any more effort than just finding 5 or 6 TIPS maturing roughly when you want and buying an equal dollar amount of each one.

Once you figure out how to search for bonds using your specific brokerage firm, even a beginner should be able to do it in far less than an hour.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
dbr
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Re: TIPS ladder using Schwab ladder builder?

Post by dbr »

CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
What is it that is causing a need for such a precisely tailored investment? Maybe it is not all that necessary.

Also, the comment above is true. The messy part about TIPS is finding maturities that fill in the gaps in long ladders due to missing 30 year issues.
Topic Author
CloseEnough
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Re: TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

dbr wrote: Thu Aug 04, 2022 8:30 am
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
What is it that is causing a need for such a precisely tailored investment? Maybe it is not all that necessary.

Also, the comment above is true. The messy part about TIPS is finding maturities that fill in the gaps in long ladders due to missing 30 year issues.
Trying to bridge to SS with some inflation protection in income. Probably it is not all that necessary, could just continue with my mix of FI (short and intermediate term bond funds, and TIAA Traditional), and just draw from portfolio, keeping allocation about where I want it. My interest in adding TIPS is after reading various recommendations outside this forum, and threads here, that TIPS are good to add (some even go 100% TIPS), as one moves from accumulation to withdrawal. Thanks all, I will look at getting more informed on the potential of buying 5-6 TIPS in the date range I'm looking at. Or just decide it is not all that necessary!
dbr
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Re: TIPS ladder using Schwab ladder builder?

Post by dbr »

CloseEnough wrote: Thu Aug 04, 2022 8:42 am
dbr wrote: Thu Aug 04, 2022 8:30 am
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
What is it that is causing a need for such a precisely tailored investment? Maybe it is not all that necessary.

Also, the comment above is true. The messy part about TIPS is finding maturities that fill in the gaps in long ladders due to missing 30 year issues.
Trying to bridge to SS with some inflation protection in income. Probably it is not all that necessary, could just continue with my mix of FI (short and intermediate term bond funds, and TIAA Traditional), and just draw from portfolio, keeping allocation about where I want it. My interest in adding TIPS is after reading various recommendations outside this forum, and threads here, that TIPS are good to add (some even go 100% TIPS), as one moves from accumulation to withdrawal. Thanks all, I will look at getting more informed on the potential of buying 5-6 TIPS in the date range I'm looking at. Or just decide it is not all that necessary!
If the SS income gap is not large it is perfectly practical to just withdraw from a normal middle of the road portfolio and run higher withdrawals for a while and lesser one's later. Retirement models like FireCalc accommodate such scenarios. For example if a person were to withdraw at 6% for five years and 3% for the duration I think it would be difficult to show that the bother of laddering money for the gap has much point.

I agree holding TIPS for the duration in a retirement might be a good idea, but that would probably mean just putting some or most of one's fixed income in TIPS funds and has nothing to do with holding five year TIPS ladders. There is no reason a person would not have fixed income in TIPS all along. I don't know what the transition from accumulating to withdrawing has to do with it. If one thinks all TIPS is extreme then one can hold 50/50 TIPS and nominals. A person still has to select duration and there are TIPS funds from long to short, also Treasuries. The basic handle on risk and return, whatever the bonds, is stock/bond allocation.
toddthebod
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Re: TIPS ladder using Schwab ladder builder?

Post by toddthebod »

CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.
Have you seen #Cruncher's spreadsheet?!
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squirrel1963
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Re: TIPS ladder using Schwab ladder builder?

Post by squirrel1963 »

toddthebod wrote: Thu Aug 04, 2022 12:28 pm
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.
Have you seen #Cruncher's spreadsheet?!
I second that, I used #cruncher spreadsheet. It will do all the calculations for you including inflation adjustments.
| LMP | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks |
toddthebod
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Re: TIPS ladder using Schwab ladder builder?

Post by toddthebod »

squirrel1963 wrote: Thu Aug 04, 2022 12:36 pm
toddthebod wrote: Thu Aug 04, 2022 12:28 pm
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.
Have you seen #Cruncher's spreadsheet?!
I second that, I used #cruncher spreadsheet. It will do all the calculations for you including inflation adjustments.
Well, I meant it a bit facetiously when he said he was surprised building a TIPS ladder is messy. I think the need for a spreadsheet like Cruncher's points to why Schwab doesn't have a one-click TIPS ladder. But I agree, it's an excellent tool!
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squirrel1963
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Re: TIPS ladder using Schwab ladder builder?

Post by squirrel1963 »

toddthebod wrote: Thu Aug 04, 2022 1:06 pm
squirrel1963 wrote: Thu Aug 04, 2022 12:36 pm
toddthebod wrote: Thu Aug 04, 2022 12:28 pm
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.
Have you seen #Cruncher's spreadsheet?!
I second that, I used #cruncher spreadsheet. It will do all the calculations for you including inflation adjustments.
Well, I meant it a bit facetiously when he said he was surprised building a TIPS ladder is messy. I think the need for a spreadsheet like Cruncher's points to why Schwab doesn't have a one-click TIPS ladder. But I agree, it's an excellent tool!
You are preaching to the choir here. Bond ladders are possibly the easiest thing there is to build. Maybe Schwab doesn't offer a TIPS builder tool because very few people outside BH even knows what TIP is, and people interested enough will probably gravitate towards #cruncher tool, which is fantastic by the way. I took his tool and rewrote it in part simply because I actually wanted to understand the math myself, not because I had to -- this is an absolutely optional step that only people who like math will ever do :-)
| LMP | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks |
Topic Author
CloseEnough
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Re: TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

toddthebod wrote: Thu Aug 04, 2022 12:28 pm
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.
Have you seen #Cruncher's spreadsheet?!
No, thanks, I had not seen that. Probably more complicated than I want, or need, but I will take a closer look.
Topic Author
CloseEnough
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Re: TIPS ladder using Schwab ladder builder?

Post by CloseEnough »

dbr wrote: Thu Aug 04, 2022 8:53 am
CloseEnough wrote: Thu Aug 04, 2022 8:42 am
dbr wrote: Thu Aug 04, 2022 8:30 am
CloseEnough wrote: Thu Aug 04, 2022 8:16 am
toddthebod wrote: Thu Aug 04, 2022 7:50 am It's just very messy to build a TIPS ladder.
Given all the discussion on this forum about TIPS ladders, that is a surprise to me.

Maybe I'd be better off using two funds, blended for duration, for example TRBFX (T. Rowe Limited Duration Inflation Focused Bond Fund) and SCHP (Schwab TIPS ETF). I will consider how to do this, there has been a good bit of information in other threads on how to use two funds blended to get close to the duration for the investment. I need to do more work on this, was just hoping that there might be a less "messy" way to add TIPS to fixed income for a 5-6 year time frame, with income produced evenly over the period. Could be done with an annuity, although I don't know if it could be inflation protected.
What is it that is causing a need for such a precisely tailored investment? Maybe it is not all that necessary.

Also, the comment above is true. The messy part about TIPS is finding maturities that fill in the gaps in long ladders due to missing 30 year issues.
Trying to bridge to SS with some inflation protection in income. Probably it is not all that necessary, could just continue with my mix of FI (short and intermediate term bond funds, and TIAA Traditional), and just draw from portfolio, keeping allocation about where I want it. My interest in adding TIPS is after reading various recommendations outside this forum, and threads here, that TIPS are good to add (some even go 100% TIPS), as one moves from accumulation to withdrawal. Thanks all, I will look at getting more informed on the potential of buying 5-6 TIPS in the date range I'm looking at. Or just decide it is not all that necessary!
If the SS income gap is not large it is perfectly practical to just withdraw from a normal middle of the road portfolio and run higher withdrawals for a while and lesser one's later. Retirement models like FireCalc accommodate such scenarios. For example if a person were to withdraw at 6% for five years and 3% for the duration I think it would be difficult to show that the bother of laddering money for the gap has much point.

I agree holding TIPS for the duration in a retirement might be a good idea, but that would probably mean just putting some or most of one's fixed income in TIPS funds and has nothing to do with holding five year TIPS ladders. There is no reason a person would not have fixed income in TIPS all along. I don't know what the transition from accumulating to withdrawing has to do with it. If one thinks all TIPS is extreme then one can hold 50/50 TIPS and nominals. A person still has to select duration and there are TIPS funds from long to short, also Treasuries. The basic handle on risk and return, whatever the bonds, is stock/bond allocation.
Just to be clear, my reasoning for adding some inflation protection fixed income in the gap until SS income is that I view SS as providing some level of protection against risk of inflation, due to COLA. And, I am not trying to 100% insure against the risk of inflation, since I also have a strong view that diversification in portfolio design is a good thing - so, I would not move to all TIPS in FI, probably not even 50/50. I did have an inflation protection fund in a 401k, years back, but somehow dropped that piece of my planning when leaving that work plan. Mistake. We all make a few. So, now with the extensive discussions in this forum about the benefits of TIPS, especially to retirees, I am working through tweaks I can make to improve my plan. Thanks for your inputs.
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