You're 77.I respectfully disagree. It is true that TIPS duration matched portfolio generates a risk free but taxable income stream but it does so at a significant opportunity cost. Current TIPS yields are about 2% real. I am 77 but I do not intend to settle for 2% real minus taxes as a long term income stream. For those who are very risk averse, volatility averse, and very wealthy, TIPs duration matching may satisfy your needs for income and be a good fit. But I personally am an optimist, and not risk averse or volatility averse. Unfortunately, I'm not that rich either. I personally don't think I'll ever have less than 40% or 50% equity in my portfolio. Having all TIPS and no equity puts a floor under your future real income flow, but importantly it puts an extremely low ceiling on it too. Long term equity hugely outperforms bonds.Ben Mathew wrote:
Interest rate risk can be addressed through duration matching bonds. A 100% duration matched TIPS portfolio will generate a risk-free stream of income. The volatility of the bond portfolio itself does not matter because the income it generates can be fixed.
Stocks don't help to diversify a duration matched bond portfolio. It will increase the risk.
What are the odds you exceed 2% real with stocks before you die?
Example:
Between 2000-2010, US stocks returned had 1.20% nominal return.
This gave a negative real return for the entire decade.
$10,000 invested in 2000 was worth $8751 by 2010.
https://www.portfoliovisualizer.com/bac ... r0glxRWuCZ
2% real TIPS would have easily beat this.
Statistics: Posted by watchnerd — Thu May 23, 2024 11:42 pm — Replies 54 — Views 23088