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Inflation Protected Assets vs. Inflation
Old 05-15-2011, 09:09 AM   #1
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Inflation Protected Assets vs. Inflation

Quick FIRECalc question.

Let's say I have 100% of my portfolio in assets that appreciate at about the rate of inflation (say, TIPS or bonds).

Is the best way to record that in the portfolio tab of FIRECalc:
1. Changing total market percent in equities to "0" (note that if I skip this step, you get different results later on.. I feel like this total market percent should be at the top of the page, not just under the total market option, because it does affect other options)

2. Clicking on the option that is "A portfolio with consistent annual market growth of"

3. Put 0% for annual market returns

3. Put fixed income returns of X%, and an inflation rate of X% (where whatever you think inflation will be, but put your fixed income returns as matching that, say put both at 3 or whatever).

Is that the best way to represent a portfolio with assets matching inflation?

I think I'm doing that right, but just a quick confirmation from those who know more than me would be appreciated.
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Old 05-15-2011, 05:06 PM   #2
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My understanding is that those four selections on the "Your Portfolio" tab -- 1) total market, 2) a mixed portfolio, 3) a portfolio with consistent annual growth, and 4) a portfolio with random performance -- each stand alone. You select one of the four and only the data in the box that you selected is used by FireCalc.

... and unless it was fixed when I wasn't looking, "a portfolio with consistent annual growth" is broken. See A portfolio with consistent annual market growth of ...
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Old 05-15-2011, 06:10 PM   #3
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Quote:
Originally Posted by Rustward
My understanding is that those four selections on the "Your Portfolio" tab -- 1) total market, 2) a mixed portfolio, 3) a portfolio with consistent annual growth, and 4) a portfolio with random performance -- each stand alone. You select one of the four and only the data in the box that you selected is used by FireCalc.
That's not correct. If you don't do my step 1 in the OP, you get different numbers. Which makes sense, because if you are 50/50, then getting 0% annual market returns and 3% fixed income returns means you are only getting 1.5% overall on your money. If you are 100% in fixed income returns, then you'd be getting 3% on your money. Try it.

EDIT: Maybe not. I thought I was seeing that the other day, now I am getting weird results (and consistent with your other thread).

Is there another retirement calc that does what I'm wanting in the OP?

EDIT2: Actually, due to the bug you posted in the other thread, isn't that basically exactly what I want, since that section is treating it as if you are 100% in fixed income?
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Old 05-17-2011, 11:09 AM   #4
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If you use "consistent annual market growth" the only parameters on that tab that will be used in the calculation are fixed income returns and inflation rate -- very simplistic straight-line projections. You can do that with in Excel in about five minutes. But it might do what you are trying to do.

As to your original question, I believe this would not accurately represent the risk of, for example, TIPS.

Edit to add: I understand modeling a return that is equal to inflation. Our plan survives in that scenario.
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Old 05-17-2011, 11:15 AM   #5
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Quote:
Originally Posted by arebelspy View Post
Is there another retirement calc that does what I'm wanting in the OP?
You might want to try Optimal Retirement Calculator and Retirement Decision Support System
I see it as different, but complementary to FireCalc. It does straight-line projections.
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Old 05-17-2011, 12:19 PM   #6
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Quote:
Originally Posted by Rustward View Post
You might want to try Optimal Retirement Calculator and Retirement Decision Support System
I see it as different, but complementary to FireCalc. It does straight-line projections.
I'll check it out. Thanks for the recommendation!
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