Originally Posted by gcgang
According to the above referenced Vanguard prospectus, you must be going out 20 years to get your 1%. Didn't they decline almost 20% last year? The Vanguard fund lost 9% in 2013. Doesn't seem a whole lot safer than stocks. I agree with the previous poster, that you may want to wait until yields get closer to their historical norm before loading up on TIPs.
Bernsteins Investor Manifesto states that the 30 years between 1952 and 1981 long term Treasury bonds returned just 2.33% while inflation was averaging 4.31%. While you aren't risking the 40% stock loss in one year, you lost over 60% during those 30 years. Interest rates are lower now than they were in 1952. During the same period stocks made 9.89%, five percent better than inflation. A 20-25% equity weighting could increase your returns and reduce your risk.
I am not buying TIPS funds. I am not buying long term Treasury bonds. I am buying TIPS at auction with set maturity dates and dollar cost averaging their yields over time, plus assorted other investments. I don't want to risk losing half my life savings at my age by having a poor sequence of returns risk early on in retirement:
"You can reduce the sequence-of-returns risk by reducing the risk of the portfolio. In other words, said Bernstein, “own less stocks.”
“To really get constant spending, one should be looking to hold fixed-income assets to maturity or use risk-pooling assets such as annuities,” Pfau wrote. “The inefficiencies of a constant spending strategy using volatile assets may be explained because of the added sequence-of-returns risk which offers no reward to investors.”
Others endorse this tactic too. “You can completely eliminate sequence-of-return risk by investing the money you need to spend in retirement in a safe bond ladder or fixed annuities,” said Cotton. “If you’re fortunate enough to have some left over, you can buy and hold stocks with that money.”
How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch
Bernstein said in a recent interview, "How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren't as risky as they seem. For the middle-aged, they're pretty risky. And for a retired person, they can be nuclear-level toxic."
"At the end of your career, you have no more earnings capacity left beyond Social Security or a pension. You have less of what life-cycle theory calls "human capital."
So if you have a long series of bad returns, plus you're withdrawing 4% or 5% of your portfolio to live on it, then in 10 to 12 years, you may not have anything left. Withdrawals during the distribution phase combined with a bad bear market can completely destroy a retirement"
The worst retirement investing mistake - Sep. 4, 2012
I am in the won the game why keep playing camp. We made most of our money from our human capital and are just investing for capital preservation and anything extra is gravy. Your mileage may differ.