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Old 10-16-2011, 10:26 PM   #21
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On this thread, people that respond zero or close to zero TIPS might comment what they do have in fixed income.
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Originally Posted by brewer12345 View Post
Call me crazy, but with such low TIPS yields I think you can hedge inflation far more effectively with modest positions in certain types of equities. Commodity producers, hard asset owners, etc. all work. Better yet is that all these things have inherent and/or financial leverage to inflation, so a little position delivers a lot of inflation protection.
Doesn't sound so crazy to me.

We're holding >~90% of our ER portfolio in equities and the remainder (roughly two years' spending cash) in a five-year CD ladder.

But my military pension is roughly the equivalent of TIPS, so there's no need to pile on more bond assets.
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Old 10-16-2011, 10:33 PM   #22
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I think I should have addressed my question to those with lazy portfolios. People who look for bargains and change their allocations outside of some basic allocation will probably be all out of TIPS.
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Old 10-16-2011, 10:50 PM   #23
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Apparently very low, as he said earlier in the thread he's at about 1.5% TIPS.
I don't have a set allocation for TIPS, nominal treasuries, corporate bonds, high yield bonds, international bonds, or whatever.

I only have a target stock/bond allocation. The type of bonds I hold varies.

In August and September, my overall bond allocation was too high. I rebalanced by selling the bonds that had appreciated most (TIPS). After taxes, the people who bought my TIPS are pretty much guaranteed to get a negative real rate of return on their money over the next few decades. Maybe they don't mind. I think I can do better. YMMV.
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Old 10-16-2011, 11:53 PM   #24
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0. I would have an allocation to TIPS as they are a good diversifer, not correlated to other fixed or equities, but they pay zip, zilch, zed, nada. If they were worth holding I'd put possibly up to 1/2 of FI in TIPS but not now.

I agree that you can get inflation protection through equity appreciation but that's over time as the past few years or past dozen years have shown except for short bursts where they did perform dramatically.
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Old 10-17-2011, 12:09 AM   #25
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On this thread, people that respond zero or close to zero TIPS might comment what they do have in fixed income.
I don't have any individual TIPS. My fixed income allocation consists of

(1) VBTLX - - Vanguard Total Bond Market Index Fund
(2) VWIAX - - Vanguard Wellesley Income Fund (currently 62.53% bonds)
(3) TSP G Fund - - Government bond fund
(4) cash (money market and savings)
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Old 10-17-2011, 12:17 AM   #26
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5% of total portfolio in VG TIPS fund. Account value has gained 60% since I bought it in 2003 or was it 2004. I don't have set allocations within the fixed area, either.
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Old 10-17-2011, 07:39 AM   #27
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My retirement portfolio is approximately 20% TIPS. It's been the shining star of my portfolio for the past 2 years or so. I am a long-term "mild" market timer, meaning once a quarter I do examine my percentages to various asset groups and sometimes make mild 5-10% adjustments. I've been known to creep into and out of stocks over a 2 year period.

In practice, I don't fully get the hand over the eyes, die-hard lazy portfolio since I find that so few people do it in practice anyway. I wonder how many at this forum could say they've gone over a decade only rebalancing and never having changed their allocation percentages. I'd be shocked, not to be mistaken with impressed, if someone could have claimed to go from 1995-2005 with zero change to their allocation percentages.
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Old 10-17-2011, 08:17 AM   #28
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At one point it was about 10%, but now down to ~5%. I use EFTs as my TIPS vehicle.
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Old 10-17-2011, 08:33 AM   #29
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For those of us close to or actually in retirement, what %age of your portfolio do you have in TIPS?
22% of our fixed income component, with a portfolio equity to fixed income ratio of ~50:50.
The NAV for ACITX and VIPSX has appreciated about 5% in the last 12 months. With the exception of I-bonds, all of our inflation 'protected' holdings are in our ROTHs.
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Old 10-17-2011, 09:10 AM   #30
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Zero TIPS

EE bonds (paper) and I bonds (TreasuryDirect)
Bond funds : VWALX, VMLTX, VWITX, DODIX
Mixed funds: VWINX, VBIAX
Emergency fund: VYFXX and credit union savings
Immediate income: CSRS survivor pension and annuity (conversion option for my TSP 401(k))

AA 30/65/5

FIREd as of April 2007
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Old 10-17-2011, 09:23 AM   #31
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I have about 7% in TIPS funds divided between Vanguard (Roth) and Fidelity (deferred). I don't pay much attention to them and don't even include them in rebalancing. I just let them ride right where they stood when I retired. The NAV may go up or down and I will continue to ignore them. They might be thoroughbreds down the road or they might just be a swayback horses.
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Old 10-17-2011, 09:55 AM   #32
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TIPS are great if you bought them a few years past, but if you had a 100K to put in the market today, looking for a 60/40 AA stocks to fixed income, would you buy TIPS? I can see some portion perhaps half the bond AA in Total bond fund, but not sure I would buy more TIPS. Maybe a small portion, less < 5%, but not a big portion. Probobably the rest in Wellesely Income fund.
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Old 10-17-2011, 10:08 AM   #33
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I think I should have addressed my question to those with lazy portfolios. People who look for bargains and change their allocations outside of some basic allocation will probably be all out of TIPS.
One thing you could do is to look at the Vanguard Target Retirement funds and select the date that you think represents your risk profile. For instance, the VTOVX the one for 2005 has 64% bonds with 19% in TIPS, link: https://personal.vanguard.com/us/fun...T#hist=tab%3A2

For other balanced fund ideas, I just click on the VG funds page and click on balanced (to left). Then check out some of the balanced funds by looking at their Portfolio & Management tab. Link to VG funds: https://personal.vanguard.com/us/funds/vanguard/all?sort=type&sortorder=asc#hist::upperTB=perfTBI| lowerTB=avgAnnTBI

Me personally, I prefer short term investment grade right now because it's a little bit better historically then ST Treasuries and Treasuries are paying practically nothing. ST IG should be able to react fairly quickly if inflation really kicks up. But basically bonds are dead money right now. I too prefer equities, but this year has not worked out well so far.
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Old 10-21-2011, 06:02 AM   #34
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I suppose that he will answer, but the question interests me also. I look at the allocation more as a market basket. If chicken is cheap, I buy chicken. If beef or pork is on sale this week, I buy beef or pork. Markets are always reacting to various things, some fundamental but many just due to whims and fancies and various technical factors of trading. I want to fade those market actions.

Even at my age, I would be ok with 90-95% equities, if they are cheap enough relative to fixed, ands even more importantly absolutely. When TIPS were offering 3%+, I bought a lot of them, but foolishly sold them for relatively small gains to buy stocks in the early 00s.

Everything today stinks; it is not a good time to be an investor... Todays retirees must poke around in the chicken guts, trying to find some scrap to make a meal from.

Ha
+1 when I go to Costco I bring my coupon book and try to take advantage of bargains. However, I also have certain minimum requirements. The 50 lb of rice is probably cheap, and heck it may even be on sale but I have no interest in a diet of rice and beans (well at least not now.). So I don't buy it regardless how cheap it is.

Back in 2000, not only did TIPs and I-Bonds look cheap relative to blue chip stocks with PE in 30-50, and tech stocks with even higher P/E. With a almost 4% real return they were more than adequate to ensure a good retirement. Unfortunately I only could find 10 year TIPs so I bought them (I sold them in 2008/9 but it doesn't matter much since they all would have matured by now.)

Now days TIPs are very unattractive. First because on a relative basis I think they are expensive since stocks are yielding 2-2.2% and historically S&P500 dividends have increase at inflation+~1%. But more importantly TIPs utterly fail me as retirement vehicle. If I get 0% coupon from TIPs and I live until my early 90s, I am pretty much guaranteed to run out of money. So why bother to purchase something that I know won't work for me.? In contrast the 5% PenFed CD offered earlier this year actually will work for my retirement (assuming inflation remains low) 5% isn't nearly the what I hope to earn but it is probably sufficient. (I just wish I had purchased more)..

The rest of my fixed income consists of 4% Vanguard GNMA (1/2 what it was a few years ago), a couple percent in a few individual bonds, that I bought when Brewer was saying good junk bonds looked attractive. My biggest fixed income allocation 5% is to Sallie Mae inflation protected bonds ISM/OSM. Despite the significant risks (e.g. what if the Occupy Wall Streets get their demand and student loans can be discharged in bankruptcy), these bonds actually generate an adequate retirement. 15K worth of 3%+ IBonds, which I intend to cash in in 2029 and hopefully blow on 70th birthday party. I also have 5% in cash, and Schwab savings account to be use to purchase real estate or when the market corrects again.
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Old 10-21-2011, 07:33 AM   #35
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In Oct of 2001, much to the consternation of our broker, I invested 10% of my wife’s IRA funds in the 30 ½ year 3.375% of 4/15/32 TIP.
The broker’s consternation was just another reminder that brokers do not necessarily promote their clients’ best interests.
In addition to providing a cash flow in excess of 3.375% (~4.3%); the market value of the TIP, as of yesterday, has appreciated by > 49%.
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Old 10-21-2011, 09:41 AM   #36
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Is everyone a market timer? I've rebalanced from TIPs to equities recently, to keep then around 15%.
Is it market timing to avoid an asset class that you know with 100% certainty will not offer returns at or above your withdrawal rate?

Some might call it market timing, but it also sounds like prudent financial management to me. If I have a real withdrawal rate of 2%, 3%, 4% or whatever, it's hard to see how owning a 10-year TIPS bond yielding 0.2% helps me achieve my goal.

I'm a big fan of TIPS and at the right real yield I could hold a very large percentage in my portfolio. But I don't see that as market timing. With a <2% withdrawal and a 3% real TIPS yield I could make my retirement work with a 75% TIPS portfolio or greater. At current 0.2% real yields, I need a much bigger portfolio, or a much smaller TIPS allocation, to make it work.
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Old 10-23-2011, 08:10 AM   #37
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This article suggests there are better options for inflation protection than TIPS + noting that SS is already inflation protection:

Upside: There Are Better Ways to Fight Inflation - WSJ.com
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Old 10-23-2011, 08:40 AM   #38
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This article suggests there are better options for inflation protection than TIPS + noting that SS is already inflation protection:

Upside: There Are Better Ways to Fight Inflation - WSJ.com
Nice article.
But for those who are concerned that inflation in excess of the 2% cited will adversely affect the value their pensions and cash savings, TIPS can have a place (15%?) in their asset (preferably tax deferred) allocation. Additionally, those living in states with high income taxes may find US treasuries advantageous.
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