Portfolio Charts Cash Article

[barrett]

For my own personal situation I thought it was time to revaluate cash (or more specifically T-Bills) and fortunately remembered this great article from Tyler at Portfolio Charts from a while back:

https://portfoliocharts.com/2017/05/12/ ... -investor/

While I have historically been bad at forecasting much of anything, I can't help thinking that demand for US Treasuries is likely to be weaker going forward and that interest rates could slowly (quickly?) climb up in the coming years. With this little prognostication in mind, I am only holding T-Bills (maturities out to one year) and I-Bonds for the non-stock, non-gold portion of my portfolio. Of course I could be wrong but I was hoping that a few others might revisit that Tyler article.

Would be curious to hear your thoughts if you do so.

[yankees60]

For my own personal situation I thought it was time to revaluate cash (or more specifically T-Bills) and fortunately remembered this great article from Tyler at Portfolio Charts from a while back:

https://portfoliocharts.com/2017/05/12/ ... -investor/

While I have historically been bad at forecasting much of anything, I can't help thinking that demand for US Treasuries is likely to be weaker going forward and that interest rates could slowly (quickly?) climb up in the coming years. With this little prognostication in mind, I am only holding T-Bills (maturities out to one year) and I-Bonds for the non-stock, non-gold portion of my portfolio. Of course I could be wrong but I was hoping that a few others might revisit that Tyler article.

Would be curious to hear your thoughts if you do so.

I will be reading it. Thanks!

Is important to me because I have now evolved to soon investing a super simple portfolio.

35% Total Stock Market
15% Nominal Treasuries
50% TIPS

All Treasuries will be in the form of individual bonds to be held to maturity. No funds.

Need to decide how I want to spread the amounts dedicated to individual bond purchases spread over the years.

It might be over 20 years but the first five years would be weighted more heavily with within the first five years the early years being weighed more heavily.

Struggle is between this time period seems to be an excellent time for TIPS purchases versus the intent to hold to maturity which then makes that money off-limits and unavailable. Of course, in an emergency the money would always be available but there could be a severe cost to accessing it before maturity.

[welderwannabe]

Is important to me because I have now evolved to soon investing a super simple portfolio.

35% Total Stock Market
15% Nominal Treasuries
50% TIPS

Wow, no gold? My issue with TIPS is they are indexed against CPI, of which the government has changed the 'basket' of many times and I believe it under represents inflation.

[barrett]

35% Total Stock Market
15% Nominal Treasuries
50% TIPS

All Treasuries will be in the form of individual bonds to be held to maturity. No funds.

Need to decide how I want to spread the amounts dedicated to individual bond purchases spread over the years.

It might be over 20 years but the first five years would be weighted more heavily with within the first five years the early years being weighed more heavily.

Struggle is between this time period seems to be an excellent time for TIPS purchases versus the intent to hold to maturity which then makes that money off-limits and unavailable. Of course, in an emergency the money would always be available but there could be a severe cost to accessing it before maturity.

Vinny, I know that you have been planning to set up a long TIPS ladder for a while now. Doing so has been all the rage over on Bogleheads as I am sure you know. If you really can hold to maturity and don't care about volatility day-to-day, month-to-month or longer, then go for it.

I just wanted to say that at your age (you are about 74, right?) I think it's a mistake to go out too many years with a TIPS ladder. I know you're a Bill Bernstein fan and are familiar with his "TIPS are risky in the short term and riskless in the longterm". He is correct, of course, at least theoretically. But welderwannabe has a point as well, I think. Now that debt is 120% of GDP and the USG is forced to borrow money at higher and higher rates, let's just say that it's in their interest to fudge the data a bit. Social Security payouts alone amount to 1.4 TRILLION dollars annually, and that is COLA'ed dollars. The USG certainly is not going to be rounding up its annual CPI numbers on those 67,000,000 monthly checks.

But my main point is that a 20-year TIPS (or 19-year, 18, 17...you get the idea) can be super volatile because they are still long-duration bonds. Over time periods that matter to us human investors, when interest rates go up their value can be in the red and by a LOT. Would you really be OK with that?? You can always do, say, a five-year TIPS ladder and just buy a new rung when the first one matures.

I think that Bogleheads who say 'Who cares what the value of my TIPS are now because at maturity, they'll end up paying 2% above inflation" have brains that are more like machines than human brains. In the human world holding long-duration bonds of any kind when their prices are getting pounded can be very trying.

Just my two cents worth, obviously.

[yankees60]

Is important to me because I have now evolved to soon investing a super simple portfolio.

35% Total Stock Market
15% Nominal Treasuries
50% TIPS

Wow, no gold? My issue with TIPS is they are indexed against CPI, of which the government has changed the 'basket' of many times and I believe it under represents inflation.

No gold. My major concern is inflation. It's been demonstrated many times that gold does not protect against inflation. It only protects against severe events. I consider those to be extremely unlikely so want to protect against what I've already experienced for many years of my life and which, therefore, is quite likely to occur against.

I think I may have also read or heard recently the TIPS CPI used could be higher than what I'm personally experiencing or the entire country. Cannot be any more specific than that.

[yankees60]

35% Total Stock Market
15% Nominal Treasuries
50% TIPS

All Treasuries will be in the form of individual bonds to be held to maturity. No funds.

Need to decide how I want to spread the amounts dedicated to individual bond purchases spread over the years.

It might be over 20 years but the first five years would be weighted more heavily with within the first five years the early years being weighed more heavily.

Struggle is between this time period seems to be an excellent time for TIPS purchases versus the intent to hold to maturity which then makes that money off-limits and unavailable. Of course, in an emergency the money would always be available but there could be a severe cost to accessing it before maturity.

Vinny, I know that you have been planning to set up a long TIPS ladder for a while now. Doing so has been all the rage over on Bogleheads as I am sure you know. If you really can hold to maturity and don't care about volatility day-to-day, month-to-month or longer, then go for it.

I just wanted to say that at your age (you are about 74, right?) I think it's a mistake to go out too many years with a TIPS ladder. I know you're a Bill Bernstein fan and are familiar with his "TIPS are risky in the short term and riskless in the longterm". He is correct, of course, at least theoretically. But welderwannabe has a point as well, I think. Now that debt is 120% of GDP and the USG is forced to borrow money at higher and higher rates, let's just say that it's in their interest to fudge the data a bit. Social Security payouts alone amount to 1.4 TRILLION dollars annually, and that is COLA'ed dollars. The USG certainly is not going to be rounding up its annual CPI numbers on those 67,000,000 monthly checks.

But my main point is that a 20-year TIPS (or 19-year, 18, 17...you get the idea) can be super volatile because they are still long-duration bonds. Over time periods that matter to us human investors, when interest rates go up their value can be in the red and by a LOT. Would you really be OK with that?? You can always do, say, a five-year TIPS ladder and just buy a new rung when the first one matures.

I think that Bogleheads who say 'Who cares what the value of my TIPS are now because at maturity, they'll end up paying 2% above inflation" have brains that are more like machines than human brains. In the human world holding long-duration bonds of any kind when their prices are getting pounded can be very trying.

Just my two cents worth, obviously.

Here you demonstrate that 1) You pay attention 2) You have an excellent memory!

I can hold on to maturity and don't care about the volatility. Until recently I usually had no idea how the market had performed each day. I am in it for the long-term.

For the last year, though, I have been looking at the daily results for three markets (500 and Dow Jones and another) plus how each of my Vanguard indexes have performed. But I just look. Never gives me desire to change anything from what I am doing. Since 2018 or so using exports from Quicken I periodically document in an annual Excel worksheet the total gains / losses for each day of the year.

I was seeing that in a day or a short period of time (number of days) I was making / losing highly significant amounts of money. None of that information caused me to question my investments. It did, though, have two effects.

It made it paradoxical knowing this information yet persisting in my bargain behavior. Investing time in finding best prices. Buying the store brand because it was less expensive.

The other was causing me to spend more money, specifically on my house. I said those gains and losses ARE real money so why not spend some on my house. So after only done one thing on my house since 1995 (new roof in 2005) I did many, many, many things to my house two years ago in 2022. Could easily afford it all.

I am now 73 years and 7 months so rounding gives you the right age.

I've never before done any investment that tied up my money. I've always had investments where I can sell today with no penalties. Therefore, buying any kinds of Treasuries with the intent of never using them prior to maturity will be something completely new to me. That is a psychological thing.

You are also correct regarding me and Bernstein. His books were extremely influential in the only investments I ever really made -- way back in January 2023, nearly 22 years ago. All new investment money since then has gone into cash type money market funds. But leaving those initial investments into various Vanguard index funds has worked out quite well so that at last look I was 53% equity and 47% fixed.

Since "I've won the game" with no heirs and no charitable intent is makes no sense to continue that degree of risk.

By the way ... getting back to Bernstein. He's probably the lead person on my personal Mt. Rushmore of Personal Finance. (Others? Mike Kitces. Mike Piper. Allan Roth.)

I have no distrust in the U.S. government in terms of TIPS. Actually, written in the law is that whatever they do they have to do in favor of TIPS holders.

I don't think the government is effective since it bows to both the wills of corporations and the people who elect them (us!), which is too oftentimes not for the benefit of all.

But one cannot both accuse the government of basically having a lot of incompetencies while simultaneously being capable of carrying out conspiracies of great dimensions.

If they make any changes to how TIPS will be handled ... it will all have to be in the open. That means it will be seen by all. What age group are the highest holders of TIPS? The old. The ones who vote at the highest rate.

TIPS have been around since 1997? That is now 27 years. We've had several times since then of financial stress plus worsening deficits. Have there been any changes in TIPS since then?

I would be okay with my TIPS being in the red, though that risk will be much reduced given the starting point in interest rate I'd be today starting with them.

I think I'm remembering correctly that at the end of the financial crisis in March 2009 it resulted in me having zero earnings from all my investments from 1990 to 2008? But I made no changes based upon that realization.

In many ways I am NOT a risk taker. But in this case inertia has been greater so that it overcame the not taking a risk.

The combination of lack of risk taking and inertia resulted in that January 2003 investment remaining as is (with all reinvested dividends) from then to the time that I am typing this. On the other hand, I've not made another risk-taking investment since that January 2003 set of investments.

As I stated above all that has left me with a 53 / 47 equity / fixed split. I could have made much more if I'd taken more risk but all that time since January 2003 I never lost a minute of sleep over how my investments were doing. Not during 2000 to 2002. Not during 2007 to 2009. Not during March 2020. I've lost far more sleep over issues regarding the two coed softball teams I coach and play on!

Again. When I do update my Excel worksheet of daily total of gains and losses (accompanied with two graphs -- one of daily amounts for the year and the other for cumulative for each date) I never consider doing anything. That's investing!

Why would it be different for TIPS? I'm sure the gains / losses would be tiny compared to those I've been experiencing with equities?

I've proven that once it has been investing I have enough of a risk-taking personality to not change. A lot of the inertia has come from not being convinced that there is any other better way of investing (for me).

I've now arrived at a place in my financial life where things seem much clearer and simpler.

Thanks for provoking me to fully express my thoughts on this. But you've also provoked me (I've now twice used that word but with a good connotation with it) to do something I'd only thought of doing.

I will append it to here once I complete it in the next half hour or so.

[yankees60]

My follow up.

As stated I've never had an investment where I'm committing to not touching it because it has a maturity factor involved.

That leaves me having to balance two things in opposition.

1) Committing to invest in something that I want to be locked up during its maturity period.

2) Buying the investment in an exceptional time period to buy it, i.e., relative high return rates for the investment.

Obviously, if I fully believe #2 I'd want to commit at these rates for long periods of time out to protect the risk of lower re-investment rates. But doing any of it increases my anxiety for #1.

Therefore, I've finally created this which I've had in my mind with this being the first time I'd ever worked it out "on paper" (with "on paper" being in Excel!).

Capture.JPG (34.03 KiB) Viewed 1314 times

The first column is the year number.

Second column is adding the total of those years in five-year increments.

Third column is dividing the year number in reverse order of year numbers by the five-year total.

Fourth column is to make sure all add up to 100%.

Fifth column is the number of the five-year period.

Sixth column is the weight I want to assign to each five-year period.

Seventh column is dividing that weight by the total amount of weight to arrive at a percentage for each five-year period.

Eighth column is the percentage of investment that will go into each five-year period.

Ninth column is to make sure all add up to 100%.

Last column is the amount that would be invested in each year arrived by multiplying its % of five years times the % for the entire five-year period. You can the amounts in each year's investment is in descending order, which makes sense to me for what I am attempting to accomplish.

This is just a first stab at coming up with some method.

I think this represents a fair balance of my above 1) and 2) opposing goals.


Finally, I left out that as opposed to Bernstein's TIPS ladders to match liabilities ... that is not what I am doing.

I am unable to shake off the shackles of extreme frugality. I'm going to continue to drive my 2004 Honda Accord until it makes financial sense NOT to do so. Why should I divest myself of a perfectly fine car? For what I look for in a car what is going to justify to me replacing a perfectly good car for my needs / desires?

That said, I was strongly considering going with a brand new EV once the present car's life is over as part of sizing a new solar installation. But that is a separate matter. I've talked to my mechanic and with only 170,000 miles on this car and me going 5,000 miles a year tops ... it can keep going on for three to five more years. When I next bring it for an oil change / winterizing ... I'm going to ask him to go through the car the same as if I was bringing it him for a pre-buy inspection, to see what kind of future expenses I might be having with it.

Back to my TIPS ladder NOT being a liability matching thing.

It's a thing to protect my investments. The main thing being to protect against future inflation. And, not taking risks that I should not be taking or don't need to take.

Does all this make it more understandable my future portfolio goal? 

[welderwannabe]

No gold. My major concern is inflation. It's been demonstrated many times that gold does not protect against inflation. It only protects against severe events. I consider those to be extremely unlikely so want to protect against what I've already experienced for many years of my life and which, therefore, is quite likely to occur against.

I think I may have also read or heard recently the TIPS CPI used could be higher than what I'm personally experiencing or the entire country. Cannot be any more specific than that.

Gold has done a fine job of protecting against inflation, it just seems to lag...well quite a bit.

Yes, the government is constantly tweaking CPI, and miraculously every time they tweak it it makes inflation look smaller.

I setup a 10 year TIPS ladder for my parents. Every year they have a slug of TIPS mature and its almost like an allowance. Its a DIY annuity.

I'm a fan of TIPS and will probably have some as I got into retirement, but not at the expense of my gold. I just need schmuck insurance against our crazy government, and TIPS don't do that.

[Jack Jones]

I think that Bogleheads who say 'Who cares what the value of my TIPS are now because at maturity, they'll end up paying 2% above inflation" have brains that are more like machines than human brains. In the human world holding long-duration bonds of any kind when their prices are getting pounded can be very trying.

If you bought the bonds to receive a fixed income, then Mr. Market is knocking on the door offering to buy your bonds for less than they’re worth to you. You don’t need to buy or sell unless your fixed income needs change.

If the housing market crashes, selling your house doesn’t do you any good. You still need a place to live.