Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

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Lastrun
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Lastrun »

rkhusky wrote: Sat Feb 01, 2025 1:56 pm
bikechuck wrote: Sat Feb 01, 2025 1:30 pm I find the ladder far easier to manage than messing around with TIPS funds of short, medium and long term durations and rebalancing them appropriately as I age.
You don’t have to do that with funds, it’s a choice. You could just use an intermediate fund, and set up an automatic withdrawal to your checking. And with the fund you don’t need to worry about an unexpected expense and having to sell a bond early or reinvesting money you didn’t spend. Just take the money out of the fund when you need it.
Agreed, and if you want to get more exotic in terms of duration matching, you could do something like this, which is very simple:
See links
viewtopic.php?p=6870064#p6870064

viewtopic.php?p=6870568#p6870568
staustin
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by staustin »

9-5 Suited wrote: Sat Feb 01, 2025 4:08 pm Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.
preferred ETF? I'm interested in constructing a similar ladder.
rebellovw
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rebellovw »

tibbitts wrote: Sun Feb 02, 2025 9:17 am This thread reminds me of the Windows / MacOS / Linux threads: whatever you have, the threads will make you think you should probably have something else, even though in the end it might not matter.
Great way to put it - and I agree.
tibbitts
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by tibbitts »

staustin wrote: Sun Feb 02, 2025 10:36 am
9-5 Suited wrote: Sat Feb 01, 2025 4:08 pm Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.
preferred ETF? I'm interested in constructing a similar ladder.
Other than iShares iBonds?
BV3273
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by BV3273 »

Does anyone recommend TIPS as a component of the Bond portion of an accumulators portfolio? Or is this better for someone nearing retirement? I am 40 and even more confused about bonds LOL
hudson
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by hudson »

BV3273 wrote: Sun Feb 02, 2025 11:30 am Does anyone recommend TIPS as a component of the Bond portion of an accumulators portfolio? Or is this better for someone nearing retirement? I am 40 and even more confused about bonds LOL
If I was 40, I'd buy some. especially at current rates.
Should you? I'm not sure. More homework is needed.
Consider

If You Can: How Millennials Can Get Rich Slowly
by William J Bernstein
https://www.amazon.com/If-You-Can-Mille ... tag=AUTHOR
dbr
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by dbr »

BV3273 wrote: Sun Feb 02, 2025 11:30 am Does anyone recommend TIPS as a component of the Bond portion of an accumulators portfolio? Or is this better for someone nearing retirement? I am 40 and even more confused about bonds LOL
Owning TIPS is fine for anyone at any stage. Essentially you are talking about Treasuries of the US government for safety and returns similar depending on duration. There does not seem to be a risk premium for inflation indexing.

Probably a better alternative to buying higher returning corporate or junk bonds is to allocate more to stocks. You can read thousands of posts discussing that if you want to. If you need to hear a consensus of comments then go for it. You probably won't get one.
Hot Sauce
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Hot Sauce »

CyclingDuo wrote: Sun Feb 02, 2025 9:09 am
Hot Sauce wrote: Sat Feb 01, 2025 9:50 pm Where do people hold their TIPS ladders - IRA or taxable?

To preserve the backdoor Roth process, I don’t have a traditional IRA. And I can’t buy individual TIPS in my 401k. So that leaves taxable, but they don’t seem very tax efficient.

Do people build the ladders while working or wait until retired
Does your 401k have a brokerage window option?
Yes, with Schwab, but I cannot buy individual treasury or TIPS in it.
WeakOldGuy
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by WeakOldGuy »

staustin wrote: Sun Feb 02, 2025 10:36 am
9-5 Suited wrote: Sat Feb 01, 2025 4:08 pm Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.
preferred ETF? I'm interested in constructing a similar ladder.
The only ETFs that I'm aware of are the iShares iBonds TIPS EFTs. Here is a partial list of iShares iBond target date bond ETFS. Scroll down and look at the TIPS column.

https://www.ishares.com/us/strategies/b ... nd-ladders
On investing; I have lots of questions, many opinions, and little knowledge. A dangerous combination. Be warned.
bogling
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by bogling »

ivgrivchuck wrote: Sat Feb 01, 2025 12:28 pm His approach is perfectly fine, but managing TIPS ladder is more gymnastics than most of us want to deal with, especially when we get old.

BND, VGIT, SCHP and similar are all good practical choices. SCHP is my personal favorite..
With actual TIPS there is inflation adjusted face value that also impacts the interest as a % of the face value, so on the funds, can you elaborate on comparing SCHP vs BND or VUSXX (100% state tax free as noted on 2024 1099) where the 30 day SECC yield (SCHP, BND) and 7 day yield (VUSXX as a MMMF) are 1.35% (SCHP) , 4.57% (BND), and 4.27% (VUSXX)? Is the large difference noted on the SCHP yield made up by NAV? TIA.
smartinvestor2020
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by smartinvestor2020 »

rkhusky wrote: Sun Feb 02, 2025 9:19 am Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.
This is one main reason I keep the average duration of my ladders short even for TIPS. If rates rise, I am happy because I can buy the next rung of the ladder at the higher interest rate and with keeping duration short, the price of my bonds will not fall hard. With 30 year TIPS, you are essentially stuck for possibly many years if rates unexpectedly rise and the price of the bond falls hard. When unexpected inflation appears, historically the fed has raised interest rates as we saw in 2022. So the (short term) inflation protection of long term TIPS are wiped out by the very high interest rate risk and drop in price that comes with TIPS yield increases. Therefore, the benefit of short term treasuries and TIPS is interest rate risk mitigation, while also having the ability to lock in higher rates when rungs mature and increase the average yield to maturity of the ladders more quickly and effectively. For example, if you have a short term Treasury ladder consisting of 1, 2, and 3 years, and the 3 year Treasury yield unexpectedly moves higher, you can buy the next 3 year Treasury note at the high rate when the 1 year treasury matures. I have staggered ladders and many more treasuries, so that each of my rungs matures more frequently. This allows me to avoid the timing of interest rates and buy the top rung treasury note at whatever the rate is when the lowest rung matures.
ivgrivchuck
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by ivgrivchuck »

bogling wrote: Sun Feb 02, 2025 12:55 pm With actual TIPS there is inflation adjusted face value that also impacts the interest as a % of the face value, so on the funds, can you elaborate on comparing SCHP vs BND or VUSXX (100% state tax free as noted on 2024 1099) where the 30 day SECC yield (SCHP, BND) and 7 day yield (VUSXX as a MMMF) are 1.35% (SCHP) , 4.57% (BND), and 4.27% (VUSXX)? Is the large difference noted on the SCHP yield made up by NAV? TIA.
I am pretty sure that the 1.35% yield quoted is the real-yield, but 4.57% and 4.27% are nominal yields. So they are not the same thing..
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHP
Bill Bernstein
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Bill Bernstein »

I favor a generous pile of short Treasuries for all investors for when the sky gets dark, and an increasing emphasis on liability matching with TIPS beginning as one approaches retirement.

But in the long run, all of the above approaches discussed in this thread, including, shudder, a total bond market fund, are likely fine.

Far more important than your precise allocations within your stock and bond portfolios is your ability to stick with them through the worst of times.

Also important: expenses, which is why I'm not overly fond of the current selection of long-term TIPS funds.

And, channeling my inner Mike Piper, more important than any of the above, especially when you're young, is properly insuring yourself against a wide range of catastrophic outcomes.
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CyclingDuo
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by CyclingDuo »

Hot Sauce wrote: Sun Feb 02, 2025 11:58 am
CyclingDuo wrote: Sun Feb 02, 2025 9:09 am

Does your 401k have a brokerage window option?
Yes, with Schwab, but I cannot buy individual treasury or TIPS in it.
Is there no option to purchase ETFs within the brokerage window?
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
GoWithTheCashFlow
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by GoWithTheCashFlow »

BV3273 wrote: Sun Feb 02, 2025 11:30 am Does anyone recommend TIPS as a component of the Bond portion of an accumulators portfolio? Or is this better for someone nearing retirement? I am 40 and even more confused about bonds LOL
Bonds are arguably much simpler than stocks. Ignoring the possibility of default, you know exactly what the amount and timing of the cash flows from a bond will be at the time of purchase. The same is not true for stocks.

Whether or not you want to buy TIPS depends on what you want the cash flows to fund. Typically we want to fund the purchase of things whose prices are affected by inflation (groceries, utilities, entertainment, etc). For this reason, TIPS are often the superior choice to nominal bonds.

Which TIPS you want to purchase depends on when you want the cash flows to happen. For the most part you won't need your investments to provide for consumption until after your retire. So, you want your cash flows to occur after retirement as you need them. That is, you want to create a TIPS ladder which throws off as few cash flows as possible during your working years. Alternatively, you could use two different bond funds to match the duration of the consumption you are funding.

Where you want to purchase TIPS depends on their tax efficiency and return. TIPS are tax inefficient and low returning. Therefore, purchasing TIPS inside a traditional IRA or 401k account is best and inside a Roth IRA or 401k is second best.
snic
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by snic »

koalb wrote: Sat Feb 01, 2025 11:38 am In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?
I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634
rkhusky wrote: Sun Feb 02, 2025 9:19 am Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.
Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
"Financial ignorance is expensive."
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koalb
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by koalb »

Bill Bernstein wrote: Sun Feb 02, 2025 3:03 pm I favor a generous pile of short Treasuries for all investors for when the sky gets dark, and an increasing emphasis on liability matching with TIPS beginning as one approaches retirement.

But in the long run, all of the above approaches discussed in this thread, including, shudder, a total bond market fund, are likely fine.

Far more important than your precise allocations within your stock and bond portfolios is your ability to stick with them through the worst of times.

Also important: expenses, which is why I'm not overly fond of the current selection of long-term TIPS funds.

And, channeling my inner Mike Piper, more important than any of the above, especially when you're young, is properly insuring yourself against a wide range of catastrophic outcomes.
Thank you Bill! You and your writings have significantly increased my odds of a sustainable retirement. I tip my cap to you.
rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

snic wrote: Sun Feb 02, 2025 5:35 pm
koalb wrote: Sat Feb 01, 2025 11:38 am In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?
I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634
rkhusky wrote: Sun Feb 02, 2025 9:19 am Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.
Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
A mix of auto-rolled bonds behaves much like a bond fund, except with more work and more restrictions.
rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

hudson wrote: Sun Feb 02, 2025 9:25 am
rkhusky wrote: Sun Feb 02, 2025 9:19 am Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.
Correct
Funds and ETFs have the same issue.
What does one do?
What would Bill Bernstein say?
Funds own a lot of different bonds that diversify the risk of different scenarios. You aren’t going to get the best possible return, but you also aren’t going to get the worst return.

Individual bonds are for those that like to tinker and like to have more control over the parts. I could also just use a LifeStrategy fund for my portfolio, but I also like to tinker a bit.
hudson
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by hudson »

rkhusky wrote: Sun Feb 02, 2025 6:13 pm
hudson wrote: Sun Feb 02, 2025 9:25 am
Correct
Funds and ETFs have the same issue.
What does one do?
What would Bill Bernstein say?
Funds own a lot of different bonds that diversify the risk of different scenarios. You aren’t going to get the best possible return, but you also aren’t going to get the worst return.

Individual bonds are for those that like to tinker and like to have more control over the parts. I could also just use a LifeStrategy fund for my portfolio, but I also like to tinker a bit.
I agree.
Low expense funds and ETFs are fine; I'm done with them for now; I may return if I need to simplify.
Treasuries don't need diversification.
Control with individual treasuries including TIPS and CDs is a big deal for scaredy-cat me; with control comes predictability. Treasuries, TIPS, and CDs bought at auction and held to maturity pay as promised to the penny.
Since the future is unpredictable, managing the durations is the hard part. I'm attracted to the highest rates, but will go out to 5 years or so with nominals.

What would Bill Bernstein say? :) He has spoken...a few posts up: viewtopic.php?p=8236467#p8236467
rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

hudson wrote: Sun Feb 02, 2025 6:28 pm Treasuries don't need diversification.
I like the diversification of corporate bonds. And it’s usually a good idea to diversify maturity.
hudson
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by hudson »

rkhusky wrote: Sun Feb 02, 2025 6:43 pm
hudson wrote: Sun Feb 02, 2025 6:28 pm Treasuries don't need diversification.
I like the diversification of corporate bonds. And it’s usually a good idea to diversify maturity.
Agree! Hedge!
snic
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by snic »

rkhusky wrote: Sun Feb 02, 2025 5:59 pm
snic wrote: Sun Feb 02, 2025 5:35 pm

I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634



Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
A mix of auto-rolled bonds behaves much like a bond fund, except with more work and more restrictions.
There are pluses and minuses to bond funds. The positive is simplicity. But I think there's a real negative if your reason for owning bonds is to cover a fixed, known future expense in a few years - say, college tuition for a kid who's now a freshman in high school. If you put all that money in a bond fund and rates go up, the fund share price will drop, and when you need to pay for the expense, you might then have to sell the bond fund shares at a loss. If you have a longer time horizon, a bond fund is fine because over time, the fund's dividends will make up for the drop in share price and everything works out in the end.
"Financial ignorance is expensive."
rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

snic wrote: Sun Feb 02, 2025 7:00 pm
rkhusky wrote: Sun Feb 02, 2025 5:59 pm
A mix of auto-rolled bonds behaves much like a bond fund, except with more work and more restrictions.
There are pluses and minuses to bond funds. The positive is simplicity. But I think there's a real negative if your reason for owning bonds is to cover a fixed, known future expense in a few years - say, college tuition for a kid who's now a freshman in high school. If you put all that money in a bond fund and rates go up, the fund share price will drop, and when you need to pay for the expense, you might then have to sell the bond fund shares at a loss. If you have a longer time horizon, a bond fund is fine because over time, the fund's dividends will make up for the drop in share price and everything works out in the end.
I agree the fixed known expense is a good application for a bond or CD. But my future retirement expenses aren’t known or fixed. Individual bonds or CD’s are fine, but so are appropriately chosen bond funds. As you say, each has their pluses and minuses.
bogling
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by bogling »

ivgrivchuck wrote: Sun Feb 02, 2025 2:16 pm
bogling wrote: Sun Feb 02, 2025 12:55 pm With actual TIPS there is inflation adjusted face value that also impacts the interest as a % of the face value, so on the funds, can you elaborate on comparing SCHP vs BND or VUSXX (100% state tax free as noted on 2024 1099) where the 30 day SECC yield (SCHP, BND) and 7 day yield (VUSXX as a MMMF) are 1.35% (SCHP) , 4.57% (BND), and 4.27% (VUSXX)? Is the large difference noted on the SCHP yield made up by NAV? TIA.
I am pretty sure that the 1.35% yield quoted is the real-yield, but 4.57% and 4.27% are nominal yields. So they are not the same thing..
Agreed. Making it hard to compare.

Portfolio Visualizer to the rescue.

https://www.portfoliovisualizer.com/bac ... X1TCR8UwAE

That seems to be a significant difference at least during this time period of both rising and declining rates.
Last edited by bogling on Sun Feb 02, 2025 9:06 pm, edited 2 times in total.
Hot Sauce
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Hot Sauce »

CyclingDuo wrote: Sun Feb 02, 2025 4:01 pm
Hot Sauce wrote: Sun Feb 02, 2025 11:58 am

Yes, with Schwab, but I cannot buy individual treasury or TIPS in it.
Is there no option to purchase ETFs within the brokerage window?
ETFs yes, but my original question - which apparently got cut off with the site’s new feature for referencing prior posts - was about where/how to build a TIPS ladder when one is still working and doesn’t have a traditional IRA.
tibbitts
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by tibbitts »

snic wrote: Sun Feb 02, 2025 7:00 pm
rkhusky wrote: Sun Feb 02, 2025 5:59 pm
A mix of auto-rolled bonds behaves much like a bond fund, except with more work and more restrictions.
There are pluses and minuses to bond funds. The positive is simplicity. But I think there's a real negative if your reason for owning bonds is to cover a fixed, known future expense in a few years - say, college tuition for a kid who's now a freshman in high school. If you put all that money in a bond fund and rates go up, the fund share price will drop, and when you need to pay for the expense, you might then have to sell the bond fund shares at a loss. If you have a longer time horizon, a bond fund is fine because over time, the fund's dividends will make up for the drop in share price and everything works out in the end.
Agreed, but I hope nobody would suggest anything other than maybe an ultra-short-duration bond fund (and maybe only a money market) for money needed in just a few years.
rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

tibbitts wrote: Sun Feb 02, 2025 10:04 pm
snic wrote: Sun Feb 02, 2025 7:00 pm

There are pluses and minuses to bond funds. The positive is simplicity. But I think there's a real negative if your reason for owning bonds is to cover a fixed, known future expense in a few years - say, college tuition for a kid who's now a freshman in high school. If you put all that money in a bond fund and rates go up, the fund share price will drop, and when you need to pay for the expense, you might then have to sell the bond fund shares at a loss. If you have a longer time horizon, a bond fund is fine because over time, the fund's dividends will make up for the drop in share price and everything works out in the end.
Agreed, but I hope nobody would suggest anything other than maybe an ultra-short-duration bond fund (and maybe only a money market) for money needed in just a few years.
I only keep 2-6 months in cash for ease of use, the rest is invested in my AA. Over time my AA will earn more than cash and I have enough reserve that I am in no danger of not being able to pay my bills if the markets crash.
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CyclingDuo
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by CyclingDuo »

Hot Sauce wrote: Sun Feb 02, 2025 9:04 pm
CyclingDuo wrote: Sun Feb 02, 2025 4:01 pm

Is there no option to purchase ETFs within the brokerage window?
ETFs yes, but my original question - which apparently got cut off with the site’s new feature for referencing prior posts - was about where/how to build a TIPS ladder when one is still working and doesn’t have a traditional IRA.
You have access to various duration TIPS via ETFs, as well as the iShares ladder as posted by another member above within your brokerage window. Currently, the iShares ladder is only for a decade which may or may not meet your needs. It seems to be a nice way to address some gap years while delaying SS.

https://www.ishares.com/us/products/etf ... IncomeView

Allan Roth wrote a nice piece on them back in 2023. The current ladder is available for 2025 to 2034, and it appears for now that they will continue to add an additional year as each current year matures. So the 2024 iShares ETF (IBIA) matured in October of 2024, and they added the 2034 IBIK to replace it.

https://www.etf.com/sections/features/c ... -tips-etfs

Have you thought about I Bonds which allows you to defer the taxes on the interest for up to 30 years within that taxable account vehicle at Treasury Direct? Used in combination with some TIPS ETFs within your brokerage window of your 401k, it would allow you to assemble a portion of your AA with your current account structure and not interrupt your backdoor Roth process.

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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by tibbitts »

rkhusky wrote: Mon Feb 03, 2025 7:37 am
tibbitts wrote: Sun Feb 02, 2025 10:04 pm
Agreed, but I hope nobody would suggest anything other than maybe an ultra-short-duration bond fund (and maybe only a money market) for money needed in just a few years.
I only keep 2-6 months in cash for ease of use, the rest is invested in my AA. Over time my AA will earn more than cash and I have enough reserve that I am in no danger of not being able to pay my bills if the markets crash.
I would not hold a large future one-time expense I knew I'd need to spend in a few years to my AA. As with most people my fixed income is in accounts that either have withdrawal penalties or would be very heavily taxed if I made a large withdrawal in one year. And I wouldn't add to equities since the money might simply not be there for an expense I know is coming up in a few years. On average would equities be up over a few years? Yes; it just depends on how much you want to rely on averages. The '70s and '00s are still fresh enough in my mind to not go there. For people with more volatile (like in 2022) fixed income they might not want that money in their usual AA flavor of fixed income either.

Might a CD or buy-and-hold short-duration individual bond work? Sure, maybe I should have mentioned them.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by 3funder »

I think your bond holdings are just fine. I wouldn't lose any sleep over it.
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rkhusky
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by rkhusky »

tibbitts wrote: Mon Feb 03, 2025 9:48 am
rkhusky wrote: Mon Feb 03, 2025 7:37 am
I only keep 2-6 months in cash for ease of use, the rest is invested in my AA. Over time my AA will earn more than cash and I have enough reserve that I am in no danger of not being able to pay my bills if the markets crash.
I would not hold a large future one-time expense I knew I'd need to spend in a few years to my AA. As with most people my fixed income is in accounts that either have withdrawal penalties or would be very heavily taxed if I made a large withdrawal in one year. And I wouldn't add to equities since the money might simply not be there for an expense I know is coming up in a few years. On average would equities be up over a few years? Yes; it just depends on how much you want to rely on averages. The '70s and '00s are still fresh enough in my mind to not go there. For people with more volatile (like in 2022) fixed income they might not want that money in their usual AA flavor of fixed income either.

Might a CD or buy-and-hold short-duration individual bond work? Sure, maybe I should have mentioned them.
That doesn’t bother me at all anymore. I just maintain my AA by rebalancing whatever happens. My taxable is all stocks and, in fact, I will have a large expense this year with a roof re-shingle. If the market drops, I will still sell stocks in taxable, but would rebalance in tax-advantaged by buying stocks (so effectively really selling bonds for the expense).

Just different approaches, neither is right or wrong. I do note that FireCalc and the like withdraw the requisite amount proportionally from stock, bond and cash holdings, and rebalance, no matter what the markets were doing at the time.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by staustin »

WeakOldGuy wrote: Sun Feb 02, 2025 12:45 pm
staustin wrote: Sun Feb 02, 2025 10:36 am

preferred ETF? I'm interested in constructing a similar ladder.
The only ETFs that I'm aware of are the iShares iBonds TIPS EFTs. Here is a partial list of iShares iBond target date bond ETFS. Scroll down and look at the TIPS column.

https://www.ishares.com/us/strategies/b ... nd-ladders
appreciated.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by tibbitts »

rkhusky wrote: Mon Feb 03, 2025 11:01 am
Just different approaches, neither is right or wrong. I do note that FireCalc and the like withdraw the requisite amount proportionally from stock, bond and cash holdings, and rebalance, no matter what the markets were doing at the time.
True, not right or wrong.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by KEotSK66 »

The best laid plans of mice and men...

My Roth-IRA has a long time horizon (hopefully I'll never touch it) so its predominantly intermediate corporate bonds (in 3 balanced funds) are appropriate.

Thanks to looming RMDs I run some NAV/rate risk due to my Rollover-IRA's predominantly intermediate corporate bonds but since this IRA generates 3.50% in income roughly half of an RMD will be covered by that income.
"I just got fluctuated out of $1,500.", Jerry🗽
AlwaysLearningMore
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by AlwaysLearningMore »

snic wrote: Sun Feb 02, 2025 5:35 pm
koalb wrote: Sat Feb 01, 2025 11:38 am In general - his approach sounds like more 'work' and 'thinking' than what I'm inclined to take on. For a true Boglehead (someone that invests to live, not live to invest) - is he right? Is his approach worth following?
I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634
rkhusky wrote: Sun Feb 02, 2025 9:19 am Individual bonds aren’t optimal if you buy when interest rates are low and you are locked into those low rates for many years while interest rates climb.
Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
Owning and purchasing individual Treasuries might be "trivial" for an interested investor (which abound on this message board). A surviving spouse? Maybe not so much.

Leaving a bond ladder (with each rung meant to be spent) and is likely to carry a surviving spouse through the rest of their life may be one option.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by artbuc »

AlwaysLearningMore wrote: Mon Feb 03, 2025 6:36 pm
snic wrote: Sun Feb 02, 2025 5:35 pm

I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634



Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
Owning and purchasing individual Treasuries might be "trivial" for an interested investor (which abound on this message board). A surviving spouse? Maybe not so much.

Leaving a bond ladder (with each rung meant to be spent) and is likely to carry a surviving spouse through the rest of their life may be one option.
I did this. Set up a TIPS ladder and short term treasury fund, both in tira. Wife is prepped to transfer settlement proceeds from maturing TIPS to treasury fund. She will take RMD from stock fund or treasury fund to maintain AA.

I will keep buying new TIPS as long as I am around.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by snic »

AlwaysLearningMore wrote: Mon Feb 03, 2025 6:36 pm
snic wrote: Sun Feb 02, 2025 5:35 pm

I don't know if Bernstein is right, but I do know that owning individual bonds is pretty trivial if you follow his approach of only owning treasuries. The "thinking" part is basically just deciding what average maturity you want, and then figuring out the specific basket of bonds of different maturities you want to buy. I include a mix of short term bills (<1 year), some intermediate notes (2-5 years) and I have one 7 year bond. I set the short-term bonds to auto-roll, which means when they mature, the same bond is bought automatically with the proceeds. And that's it. Set it and forget it, except maybe once every year or two, when I might want to buy some more longer-term bonds with the maturing short-term money because by then the long-term bonds I bought years ago will now mature in a short time. 20 minutes of thinking and work every year isn't much harder than deciding which bond index fund to invest in.

If you go this route, get this bond bible. It's very well written and clearly explains the different kinds of bond risks: https://www.amazon.com/gp/product/0312353634



Sure, which is why one should probably avoid longer term bonds, or at least allocate only a portion of the portfolio to them. The converse of your argument is that if rates fall, longer-term bonds actually are optional because they're paying you far more than any bond you can buy. Which is why a mix of different maturities is ideal.
Owning and purchasing individual Treasuries might be "trivial" for an interested investor (which abound on this message board). A surviving spouse? Maybe not so much.

Leaving a bond ladder (with each rung meant to be spent) and is likely to carry a surviving spouse through the rest of their life may be one option.
The way I look at it, in a couple where one member handles the investments, either the other spouse is interested enough to learn about the investments now, or the other spouse is not. If the former, then the surviving "non-investor" spouse will be able to carry on and make his/her own decisions from an informed point of view. If the latter, then most likely the surviving spouse will seek external guidance re the investments. Either way, it's doubtful that whatever strategy the "investor" spouse set up will survive his/her death.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Taylor Larimore »

Bogleheads:

On page 1 of his 43 page booklet, "If You Can", Dr. Bernstein recommends The Three-Fund Portfolio containing:

A U.S. total Stock Market Index Fund
An international total stock market index fund
A U.S. total bond market index fund.

This is the link to his booklet: https://www.etf.com/docs/IfYouCan.pdf

Best wishes
Taylor

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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by ivgrivchuck »

bogling wrote: Sun Feb 02, 2025 9:01 pm
ivgrivchuck wrote: Sun Feb 02, 2025 2:16 pm

I am pretty sure that the 1.35% yield quoted is the real-yield, but 4.57% and 4.27% are nominal yields. So they are not the same thing..
Agreed. Making it hard to compare.

Portfolio Visualizer to the rescue.

https://www.portfoliovisualizer.com/bac ... X1TCR8UwAE

That seems to be a significant difference at least during this time period of both rising and declining rates.
But the expected return is the same.

When the inflation turns out to be higher than expected, TIPS beat nominals. When the inflation turns out to be lower than expected, nominals beat TIPS.

Past is past, it could go either way going forward.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by KEotSK66 »

ivgrivchuck wrote: Mon Feb 03, 2025 10:21 pm When the inflation turns out to be higher than expected, TIPS beat nominals. When the inflation turns out to be lower than expected, nominals beat TIPS.
That and using stocks vs inflation is why I don't bother with TIPS.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by notjackbogle »

KEotSK66 wrote: Tue Feb 04, 2025 8:11 am
ivgrivchuck wrote: Mon Feb 03, 2025 10:21 pm When the inflation turns out to be higher than expected, TIPS beat nominals. When the inflation turns out to be lower than expected, nominals beat TIPS.
That and using stocks vs inflation is why I don't bother with TIPS.
TIPS are a substitute for other bonds, not for stocks, and they're not intended to provide a higher return than nominal Treasuries. They offer insurance against inflation risk.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by KEotSK66 »

how much inflation insurance TIPS provide is debatable, another reason for me not to substitute them for my straight bonds for which I know the cash flows
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like2read
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by like2read »

Best site to learn about TIPS:

https://tipswatch.com/why-tips/
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by 9-5 Suited »

staustin wrote: Sun Feb 02, 2025 10:36 am
9-5 Suited wrote: Sat Feb 01, 2025 4:08 pm Two quick things:

1. You can use ETFs to build a 10 year TIPS ladder if you’re ok paying a modest expense ratio for the convenience. So the funds vs. bonds is somewhat of a false dichotomy.
2. Related to the above, you can also use a long term TIPS fund like LTPZ to cover years 11-X of the “ladder”. Modestly imperfect, but totally acceptable. And while avoid long term nominal bonds is reasonable, avoiding long term TIPS is not necessary because the primary risk of long nominal bonds is inflation which is mitigated by the TIPS.

We use equity index funds + an ETF based TIPS ladder as described above for our own portfolio.
preferred ETF? I'm interested in constructing a similar ladder.
We use iShares iBonds TIPS ETFs.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by Bagels »

Taylor Larimore wrote: Mon Feb 03, 2025 7:18 pm Bogleheads:

On page 1 of his 43 page booklet, "If You Can", Dr. Bernstein recommends The Three-Fund Portfolio containing:

A U.S. total Stock Market Index Fund
An international total stock market index fund
A U.S. total bond market index fund.

This is the link to his booklet: https://www.etf.com/docs/IfYouCan.pdf

Best wishes
Taylor

Jack Bogle's Words of Wisdom: “For those that want to keep things simple, total bond is a great option.”
I only see about 16 pages, but good stuff nonetheless.
(Maybe my software shows pages differently)
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by babystep »

koalb wrote: Sat Feb 01, 2025 11:38 am "I’m not wild about bond index funds either, since about a third of their holdings consist of corporate bonds and asset-backed securities, such as mortgage vehicles, that lack government guarantees. In 2008, total bond funds suffered only minor losses because the gains in their Treasury and agency holdings mitigated the damage incurred in their corporate and asset-backed bonds.
I have been wondering about this. Please see this thread about corporate bonds.
viewtopic.php?t=447462

koalb wrote: Sat Feb 01, 2025 11:38 am Finally, the safest way to meet retirement expenses is a TIPS ladder
Regarding TIPS, I just can’t fully digest the idea that they are the safest option. Safest?

I wouldn’t be surprised if we see another rude awakening, similar to the last few years, when investors realized that bonds weren’t as safe as they were led to believe. There are plenty of discussions about people selling bonds after seeing their values drop. The common Bogleheads response has been: "Sorry, you misunderstood how bonds work..." or "Bonds are not safe; they are safer."

And now, TIPS are the safest?

Similarly, many investors are led to believe that TIPS will safeguard them against inflation. But CPI is not personal—a retiree’s personal inflation rate isn’t necessarily the same as the average CPI. You might think you have an inflation-protected asset, but if your personal inflation is higher than the reported CPI, then it won’t work as expected.
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by dogagility »

babystep wrote: Fri Feb 07, 2025 10:40 pm
koalb wrote: Sat Feb 01, 2025 11:38 am Finally, the safest way to meet retirement expenses is a TIPS ladder
Regarding TIPS, I just can’t fully digest the idea that they are the safest option. Safest?
A single TIPS (not a TIPS fund holding multiple TIPS with different maturities) is the safest for the following reason.

If the retiree wants to have a known amount of real dollars at some specific date in the future, then an individual TIPS is guaranteed to meet that need. (barring a Treasury default)
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by KEotSK66 »

dogagility wrote: Sat Feb 08, 2025 5:19 am If the retiree wants to have a known amount of real dollars at some specific date in the future, then an individual TIPS is guaranteed to meet that need. (barring a Treasury default)
barring inflation coming in low
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Re: Bernstein makes me wonder if I'm doing bonds all wrong? Seeking advice.

Post by dbr »

KEotSK66 wrote: Sat Feb 08, 2025 6:32 am
dogagility wrote: Sat Feb 08, 2025 5:19 am If the retiree wants to have a known amount of real dollars at some specific date in the future, then an individual TIPS is guaranteed to meet that need. (barring a Treasury default)
barring inflation coming in low
If inflation is less than expected TIPS still meet the need of supplying a known amount of real dollars. That is true even if there is deflation -- CPI goes down, TIPS index goes down -- as it should. They do throw you a sop you don't deserve, which is the index never falls below the face value.
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