Nothing is "necessary" - you should own what you feel comfortable owning and what you think aligns with your risk tolerance. As for making a decision based on "rumblings", that's starting to get market timing territory which is generally frowned upon on this forum. Nobody knows what's going to happen in the future. But whether inflation picks up again or not, the income from individual TIPS bonds will adjust for inflation very quickly, whether it's high or low.Just retired at 69. Anything is possible, but not expecting a 30 year retirement (suppose I could tap into home equity 25 years from now if needed). Plan on having an approximate 60/40 portfolio. Total bond allocation is about $200K. Didn't really plan on using TIPS or TIPS funds until I heard the recent rumblings about rising inflation over the next few years. My initial plan was to keep it simple - have my nominal bond funds, make my withdrawals either semi-annually or annually and then rebalance. Any thoughts on the need to add TIPS ETFs such as SCHP or TIP and have an approximate 50/50 split on my bond allocation with 50% TIPS and 50% nominal funds? Not a major undertaking - would just have to sell the bond funds in one of our IRAs and buy a TIPS fund. Based on the amount of money in bonds, coupled with my time frame, do you think it's necessary to add TIPS funds at this point? Thanks.
An example of one person's thinking (mine). A few years before I retired, and before the latest bout of inflation started, I decided to move my bond holdings, which were held in an intermediate nominal treasury bond, to what is the equivalent of a TIPS ladder. I decided that, as I retiree, I would be more interested in thinking in terms of the income my portfolio could produce rather than maximizing the returns it could produce. It was a personal decision to move a portion of the source of that income from an asset that is more "returns focused" (bond funds) to something that is directly more income focused (a ladder). Remember, TIPS adjusts their coupons and their principal with inflation and they react very quickly to inflation changes. Because of the inverse nature of yields vs. returns, the returns of a single bond fund do not react as quickly to inflation changes as does a ladder.
So, the income I receive today, as a retiree, comes from 4 sources
1. SS bridge from what is the equivalent of a TIPS ladder for me
2. SS bridge from what is the equivalent of a TIPS ladder for my DW
3. The equivalent of a TIPS ladder that provides income all the way to the end of our retirement planning horizon
4. Withdrawals from our stock funds which includes distributions they make as well as long term capital gains
1, 2 and 3 all provide deterministic income in real terms. 1 and 2 will be replaced by SS streams once those start. I use amortization to calculate withdrawals from stock, which basically means that my withdrawals from that chunk are somewhat variable. In other words, I wanted a large portion of my income streams to be deterministic, enough such that I could tolerate the probabilistic variability that comes from stock withdrawals.
The above funds our nondiscretionary spending. Discretionary spending comes from additional stock we own, some of which may be subject to Roth conversions.
Cheers.
Statistics: Posted by dcabler — Sun Nov 17, 2024 5:15 am