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Old 11-27-2015, 11:23 AM   #41
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the problem is even getting zero real return can be a challenge .
I-bonds and individual TIPS (5 - 30 years) all return at least zero real return right now:
United States Government Bonds - Bloomberg
Ten year TIPS are at inflation + .59%.

The liability matching strategy does not imply a 100% portfolio of TIPS, inflation adjusted annuities and I-bonds - only enough, along with other income like SS, pensions, and rental income to meet your essential retirement living expenses, such as food, housing and medical care. The around the world cruise money can be invested in riskier assets, if you like. Then as Bernstein puts it, if your riskier investments don't do as well, at least you're not pushing a shopping cart under an overpass.
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Old 11-29-2015, 03:46 PM   #42
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Is total bond return giving negative real returns? Just looking at vanguard's performance summary of total bond (VBTLX) seems to show zero or positive real return over 1,3,5,10 year periods. (I'm just eyeballing it)
Those 1, 3, 5, 10 year periods involved net declining interest rates, for the most part. Which means that total real return involved capital gains (realized and unrealized). If there is any upward movement in rates, your return will almost certainly be negative real return, since there will be zero capital gains to speak of to contribute to your total return (and likely capital losses).

Perhaps rates will barely nudge up, and will stay as-is for the next 3 years. If so, at best you have nominal rates which are even to or a little under inflation, since you (again) still have zero capital gains to speak of.
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Old 11-30-2015, 09:04 AM   #43
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Those 1, 3, 5, 10 year periods involved net declining interest rates, for the most part. Which means that total real return involved capital gains (realized and unrealized). If there is any upward movement in rates, your return will almost certainly be negative real return, since there will be zero capital gains to speak of to contribute to your total return (and likely capital losses).
I understand your point but I took Mathjak's statement about returns (based on his wording and example) to be actual returns we've experienced and not future expected returns. Perhaps I mis-interpreted him.

However, rates have already gone up -- we saw a step up in 2013 and total bond is still positive in real terms over the past 3 years. I have no doubt that going forward returns will be crappy but I don't believe they will be negative when averaged over a few years.
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Old 11-30-2015, 09:30 AM   #44
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I don't worry about getting a positive real return from the fixed income portion of my portfolio. It's there for stability, and safety during periods of market turmoil. Which means it's going to hold a good amount of higher quality bonds, and they don't yield as much as riskier bonds do.

During good equity market years, some of the gain in equities is trimmed to grow the bond portion. During bad equity market years, the bond portion will be trimmed somewhat to restore the equity portion.

The equity portion plays the role of keeping up with inflation, and for that reason at least half of the portfolio is in equities. But equities are a rollercoaster compared to bonds, and since we're retired and living off our investments, we prefer to have that rollercoaster smoothed by fixed income, which includes bonds.

BTW - total return investor, if you didn't already figure that out. I don't worry about what anything is yielding.
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Old 11-30-2015, 03:11 PM   #45
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I don't worry about getting a positive real return from the fixed income portion of my portfolio. It's there for stability, and safety during periods of market turmoil. Which means it's going to hold a good amount of higher quality bonds, and they don't yield as much as riskier bonds do.
This shows how much retirement planning has changed in the last generation. There was a time when fixed income was expected to produce real returns and was the default for retirement....stocks were just too risky.
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Old 11-30-2015, 03:21 PM   #46
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This shows how much retirement planning has changed in the last generation. There was a time when fixed income was expected to produce real returns and was the default for retirement....stocks were just too risky.
A very astute observation! Yeah....I had aunts who got by quite nicely clipping coupons. Today, they might be more challenged.

(As a side note, I once mentioned "clipping coupons" to someone. They thought that things were so desperate that the folks were clipping grocery coupons)
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Old 12-01-2015, 08:23 AM   #47
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(As a side note, I once mentioned "clipping coupons" to someone. They thought that things were so desperate that the folks were clipping grocery coupons)

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Old 12-01-2015, 09:06 AM   #48
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This shows how much retirement planning has changed in the last generation. There was a time when fixed income was expected to produce real returns and was the default for retirement....stocks were just too risky.
I think these folks were ignoring inflation while spending their interest or dividends.
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