![]() ![]() Opinions expressed by the author are his own and are not intended to serve as specific financial, accounting, or tax advice. While TIPS may be a greater challenge to implement for investors when compared to mutual funds, the available of guaranteed, inflation-adjusted income should be considered when building a portfolio for financial independence.ĭavid Gardner is a Certified Financial Planner™ professional at Mercer Advisors practicing in Boulder County. These trade just like stocks and so are available low trading costs and are easy to sell as well. BlackRock has recently released TIPS exchange traded funds (ETFs) with target maturities from 2024 to 2023. The pricing and trading of bonds can be tricky for individual investors. Most brokerage firms such as Fidelity and Schwab will allow you to purchase TIPS bonds at different maturities in your IRA and taxable investment accounts. There are few ways you can purchase them. So, let’s say you’re interested in buying TIPS bond. Of course there are factors such as taxes that need to be considered. With today’s prices with TIPS it is theoretically possible to sustain a 4.5% rate of withdrawal accounting for inflation. In previous columns, I’ve written about the 4% sustainable withdrawal rate. The availability of these elevated inflation adjusted yields has some financial nerds in a tizzy because it now appears possible to finance a 30-year retirement at lower cost than before. According to date available at, you can currently build a ten year TIPS ladder – which means a bond matures every year - for an average yield of over 2.5% above inflation. Treasury bonds, TIPS bonds have been available at interest rates that we haven’t seen in over a decade. So, if I see a TIPS bond in five years with a yield to maturity of 2.5%, this means if I own the bond it will earn 2.5% every year plus the principal of the bond will go up with inflation every six months. When you look at TIPS that are available, they are usually quoted in figures that use real yield - or interest earned above inflation. Unlike traditional Treasury bonds, TIPS pay a rate of interest over a period of time in addition to increasing by the rate of inflation every six months using the Consumer Price Index. ![]() They are Treasury Inflation Protected Securities (TIPS). Treasury offers an investment that allows you to keep pace with inflation. Five percent nominal yields may sound great, but in an environment in which annual inflation was 8.7% at one point last year there’s a risk that the cost of living can swallow up a high rate of interest.įor those who are concerned about inflation-adjusted returns (and that is most of us), the U.S. It stems from a significant downside of fixed rate investments and that is the effect that inflation can have on your real returns. Treasury that could even be more attractive. While the allure of 5% tax-advantaged, guaranteed yield is hard to dispute, there’s another option available from the U.S. Treasury bonds is not subject to state income tax. For savers with more money to put away, with Treasury bonds you don’t need to be concerned about FDIC limits as you do with bank accounts. Treasury is generally known as one of the safest, most liquid investments. In spite of the $2 trillion federal government deficit for the last fiscal year, the U.S. There’s a lot to like about these investments. Most investors are familiar with Treasury bonds, which for the first time in over a decade have neared 5% yield for the ten-year maturities. But in at least one key way, it could be an ideal time for financial independence in 15 years or more. If that’s not enough, we continue to see stories marking the death knell of the hoary 60-40 portfolio - that it won’t work in today’s modern market. While we’re officially in a bull market, it’s a docile one that has gone the way of Ferdinand in the meadow rather than charging the stock market to new highs. With wars overseas and a sclerotic legislative process at home, at first glance it doesn’t seem like the best time to consider wrapping up work and moving into financial independence. ![]()
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