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Bob_Smith · 03-07-2004, 12:09 PM

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But I still don't think you can buy your own TIPS for your own IRA. *I think your custodian has to do that for you, of course with a fee. *That one-time fee is lower than paying annual expense ratios, but the fee is still higher than doing it via Treasury Direct.

Yes, you can buy TIPS for your IRA - not just on the secondary market, but you can also buy new issues at auction if you are concerned about the spread. The brokerage acts as agent, but at Vanguard, for example, the one-time fee for TIPS purchased at auction is only $25. That is so small that it is essentially a non-issue for those who prefer to buy and hold a large dose of TIPS in a tax-deferred account.

charlie · 03-07-2004, 12:27 PM

Buns,

Since you will not draw on your IRA for 27 years, it
makes good sense to me to be agressive in your
IRA and more conservative in your taxable stuff that
you will need to start using in 10 years. You need
to do the math, but at your age it still makes sense
to achieve a 70/30 overall asset mix if you can handle
the volatility and faithfully rebalance. If it were me,
I would concentrate on I-bonds and/or EE/E savings
bonds and 5 yr CD's from Penfed (as suggested by
others) for the bond part of your taxable fund.
The I-bonds will track inflation and EE/E nearly so and
you owe no tax until you redeem them. You can cash
in CD's with a small penalty if inflation takes off.

I really don't think you should treat your house as a
bond asset. If you are lucky and live in a good area
that is growing the house might track inflation. We
don't know enough about your personal situation to
comment much further.

cheers,

Charlie

Bob_Smith · 03-07-2004, 12:32 PM

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Yes, the financial planner who works for my credit union told me that all of my assets should be treated as one portfolio. I heard this about 6 years ago back when I had no idea that ER is even a possiblity, but now that I have two different retirement horizons, one at 42, and one at 60, doesn't it make sense to treat the taxable and tax-deferred as two portfolios?

I agree with Charlie, BOV. Determine one overall asset allocation and distribute the assets between taxable and tax deferred in whatever way makes sense for tax purposes. Ultimately three things will determine whether you will be able to retire at 42, 60, or somewhere in between:

1. the size of your portfolio
2. your level of spending
3. your tolerance for work (which in my case dramatically accelerated #1 and greatly reduced #2)

In reality you have only one portfolio that should be as tax efficient as you can make it. I don't see how you can add any value by allocating separately. It will just muddy the waters.

unclemick · 03-07-2004, 01:20 PM

I tend to agree with the previous two posts - work both ends of the stick.

We lump everything together 401k, trad IRA, rollover IRAs, taxable mutual funds and 'hobby stocks', some cash to look at overall diversification and asset classes etc. The long end.

Then look at how to extract an income stream in the most tax efficient manner. The short end.

In your case since the house is expendible - a SWAG as to what you might net today in cash ? should probably be estimated when looking at diversification of assets.

Our house is a 'fish camp' in hurricane alley so expendible as in uninsured makes it an expense item for us. Also check equivalent rentals every year or so along with a back-up plan to cover the added spending.

03-07-2004, 01:23 PM

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It's been proven that predicting rate changes is just as difficult as predicting stock market changes. Even fed moves are impossible to predict - and if you think you can benefit, think again.

I'm not sure who said it but, - "There are two groups of people in regard to judging interest rates -

Those who don't know how to predict interest rates and those that don't know that they don't know how to predict interest rates.

wabmester · 03-07-2004, 06:37 PM

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Why is everyone expecting interest rates to rise?

I guess there are at least a couple of answers to that. * You can tell when the market is expecting interest rates to rise. * The smart economist types will tell you that the best predictor of future interest rates comes from the current yield curve. *Right now, the curve is steep, indicating that short-term rates are expected to rise relatively quickly. *Long-term rates are fairly low, indicating that they aren't expected to rise very high.

The current thinking is that our growing debt will drive the supply side of treasuries higher. * This would normally cause rates to rise, but Japan and China are currently keeping the demand side high. * Greenspan (last week, I think) mentioned the obvious -- that this demand cannot be sustained, and that spooked the market enough to cause rates to start rising (right up until the bad jobs numbers came out).

The low fed funds rate is also a factor -- both in terms of expectations that the fed will raise and that the loose monetary policy will drive inflation higher.