I'm not relying on "anything could happen" - that's a strawman. I'm suggesting there are plausible scenarios under which either could be better on an after-tax cash flow basis than the other. Which is better for the individual depends in part on how valuable you regard pre-tax certainty, taking into account that high taxes combined with high unexpected inflation will result in uncertain after-tax real cash flow. TIPS certainly dominate nominal treasuries for those purposes.Yeah, so we know ex ante that anything could happen ex post, so that bit just seems like sophistry, but the main point about TIPS is that we know the real return ex ante, while with nominals we know the nominal return ex ante (of course with uncertainties due to reinvestment rates if a rolling ladder, but that doesn't matter for the non-rolling TIPS ladders we're discussing here, and credit risk for non-Treasury issues). Since expenses tend to increase with inflation (by definition), TIPS do a better job of matching expected residual living expenses in retirement.
We don't know that the future will bring, but we know there's a possibility that future inflation, high tax rates and adjustments to how munis react will result in a combination of munis and TIPS being better than all TIPS. In other words, ex ante we know that ex post the combination might be better. Therefore might want to plan for that possible future and invest in the combination now. How to best structure that combination is a harder question and there are a very wide range of possible combinations, some depending on personal circumstances and preferences.
I mentioned the credit risk of munis and some other considerations above at viewtopic.php?p=8536487#p8536487
So with a TIPS LMP, it doesn't matter whether inflation is higher or lower than expected, since TIPS nominal returns will vary similarly with inflation. With nominals that's not the case, so taking on the unexpected inflation risk could pay off, but it also could not; i.e., risk is always a 2-edged sword.
It's the difference between a horse-race mentality, when we're speculating on which will do better in nominal terms, and a liability-matching mentality, where which one does better isn't the point, but just matching our real liabilities as effectively as possible is the point.
Please note that I like TIPS and believe covering necessary expenses with them is an excellent idea. FWIW, our IRAs are essentially all TIPS and taxable is munis and equities.
Statistics: Posted by Apple314 — Mon Oct 06, 2025 5:50 pm — Replies 46 — Views 2349