TIPS and CD ladder combined?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
guppyguy
Posts: 7
Joined: Tue Jan 30, 2018 4:24 pm

TIPS and CD ladder combined?

Post by guppyguy » Sun Nov 10, 2019 6:18 pm

Hello!
I'm 45 with a current bond portfolio (all tax-deferred accounts) consisting of a 5 yr CD rolling ladder. First rung is coming up this December. I've been considering the merits of increasing my TIPS mix and would like to ladder them, similar to my CD ladder.

My question is, is it better to have a separate ladder for TIPS or can I combine them on the same ladder, making the decision whether to purchase the next 5 year rung TIP or nominal/CD when each comes due, (thus moving my TIPS/nominal allocation 20% in either direction at time).

User avatar
David Jay
Posts: 7195
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: TIPS and CD ladder combined?

Post by David Jay » Mon Nov 11, 2019 8:27 am

guppyguy wrote:
Sun Nov 10, 2019 6:18 pm
...making the decision whether to purchase the next 5 year rung TIP or nominal/CD when each comes due, (thus moving my TIPS/nominal allocation 20% in either direction at time).
I think this is the portion of your thinking that will be the most problematic. Almost every strategy of dynamically modifying your financial decisions based on current market conditions is going to end up being expensive.

Your portfolio will almost certainly do better when you select a plan, write it down in an IPS (see the Wiki) and stay the course.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
guppyguy
Posts: 7
Joined: Tue Jan 30, 2018 4:24 pm

Re: TIPS and CD ladder combined?

Post by guppyguy » Mon Nov 11, 2019 10:32 am

Hi David-

Don't disagree.
1) I was influenced by https://www.advisorperspectives.com/ar ... tips-cheap. I'm still unsure what how much of my bond allocation should be in TIPS. I thought that this article gave some practical guidance.

2) WRT the original question, so lets say I just use a 50/50 split, nominal vs TIPS. 5 year ladder. All of my current allocation is in nominal, holding to maturity. Is it better to have a whole separate ladder for TIPS or can I have a ladder that contains both, as originally described?

User avatar
Svensk Anga
Posts: 589
Joined: Sun Dec 23, 2012 5:16 pm

Re: TIPS and CD ladder combined?

Post by Svensk Anga » Mon Nov 11, 2019 11:29 am

For a five-year ladder, it seems that a spike in inflation could not hurt you very much. Now if you are liability matching for a 30-year retirement, you do very much need to manage for inflation. Also, at age 45, unless you are planning a rather early retirement, you presumably have a good bit of inflation tracking human capital to use to make up for any inflation-induced impairment of your fixed income portfolio.

If inflation picks up, one rung of your ladder will be maturing within a year and can be reinvested at a presumably higher rate. Rung 2 suffers for a year or two below prevailing rates before maturing, etc.

Post Reply