CPI... and what else?

[OldShooter]

The question is OK, what are you going to do about it? In my own portfolio, as I've continued to learn more, I added a higher foreign component and some inflation protected instruments (TIPs/iBonds). Will it protect me? I have absolutely no certainty, but it does seem logical to add some geographical diversity and inflation protection to my mix - at least in some scenarios, I'm hoping it will lengthen the runway before I go off the cliff.

+1

That is exactly our thinking and exactly what we have done. Equities are about 50/50 US/Non-US, much of it in VTWSX. We also hold enough in TIPS to cover our needs for several years, but we will try to avoid liquidating them because they are basically insurance against high inflation/aka the cliff.

 

[NW-Bound]

The question is OK, what are you going to do about it? In my own portfolio, as I've continued to learn more, I added a higher foreign component and some inflation protected instruments (TIPs/iBonds). Will it protect me? I have absolutely no certainty, but it does seem logical to add some geographical diversity and inflation protection to my mix - at least in some scenarios, I'm hoping it will lengthen the runway before I go off the cliff.

Not a lot I can do either, other than taking a more defensive stance and lowering my expectations.

After last year gain of more than 20% with a stock AA of 75% or so, I expect the market to be in a trading range and not go up like Jack's bean stalk. And I have been playing the market accordingly with my option trading, and with the stock AA adjusted downward to 60%. If and when the market tanks, I will lose money, but hopefully less than the next guy.

I also do not have any pent-up desire for anything, hence no need to blow any dough. That helps stockpiling the ammo for when the going gets tough.

My trailing 12-month expenses run 2.4% of current portfolio. It will be even lower if we claim SS. Things have to get pretty bad for our living standard to decline, I think.

 

[big-papa]

+1

That is exactly our thinking and exactly what we have done. Equities are about 50/50 US/Non-US, much of it in VTWSX. We also hold enough in TIPS to cover our needs for several years, but we will try to avoid liquidating them because they are basically insurance against high inflation/aka the cliff.

Yep, though we already have specific plans for ours (or course plans can change). Hope is to make it to 70 then liquidate TIPs/Ibonds over about a 15 year period as an inflation adjusted adder to SS, since together both cover our minimum spending needs, leaving the stock/bond portfolio for pre-age 70 and for any unexpected expenses/fun. After 85, if we're still around, we'll consider a SPIA to take the place of the TIPs/ibonds to take us to the end, since they'd be pretty cheap by that age. Till then, and while I'm still working, the two of us are maxing out the $10K/year Ibond purchases each and $5K adder via IRS refund.

 

[OldShooter]

... while I'm still working, the two of us are maxing out the $10K/year Ibond purchases ...

Last time I looked at IBonds I didn't see anything very attractive compared to just buying TIPS directly. This in addition to the annual limit, which would not work for us. Just curious: Why IBonds instead of just buying TIPS? Maybe I missed something. Tax advantage maybe? Our TIPS are held in IRAs so that would not be an issue/advantage for us.

 

[big-papa]

Last time I looked at IBonds I didn't see anything very attractive compared to just buying TIPS directly. This in addition to the annual limit, which would not work for us. Just curious: Why IBonds instead of just buying TIPS? Maybe I missed something. Tax advantage maybe? Our TIPS are held in IRAs so that would not be an issue/advantage for us.

Practical reasons mainly. Already own much more TIPs today in my IRAs than Ibonds in TD and only plan on working a couple more years anyway. Pretty much fill up my tax deferred space each year in other ways in order to meet my AA, so not planning on purchasing any more TIPs at this point. Only thing about Ibonds is I wish the amount one could purchase each year was also indexed to inflation, but it's not.

 

[NW-Bound]

I last bought I bonds in 2006. It paid 1% above inflation rate.