Yeah - maybe, but I still can’t get past the point that this whole comparison is setting up a choice that virtually nobody makes.Our 1st Draft Conclusion (above) envisions two groups.
One group that would be willing to buy 20+ yr TIPS at "Any" YTM (if it meets their minimum spending needs) for SWAN purposes because they don't trust markets to repeat long-term past performance.
And a second group who would only buy Long TIPS if they are priced to compete with LT-Stock returns. (e.g. Trust historical stocks returns to continue)
But this misses a third group who uses historical Bond Yields as their buy-threshold instead of historical stock returns. They reason that they're always going to hold some fixed income anyway, so why not just lock it in now if TIPS Yields exceed a long-term historical average like 2% real. (e.g Trust historical Bond Yields to continue but Not stocks)
Framed this way, there are 3 tiers to answering the question of our thread:
By example, "I will buy 20+ Yr TIPS when YTM's...."
1- Meet my minimum spending needs; Or
2- Meet my minimum spending needs, AND exceed 2% average real historical bond yields (-4.3%; 7.2%); Or
3 -Compete with historical stock returns. (6% Avg, 0-3% worst case from 20 to 30 years, respectively)
1. Hold TIPS 20+ years and liquidate when needed or
2. Hold stocks 20 + years and liquidate when needed.
Realistically nobody does number 2. Over the course of 20 years they will convert some or most (or all) of that to bonds and cash. If you need that money in 5 years, on your 90th year of life, you aren’t going to keep it 100% stocks when you are 85.
As such the comparison of 20+ years of TIPS vs 20+ years of stocks is irrelevant.
Statistics: Posted by JBTX — Sat Jun 15, 2024 10:25 pm — Replies 248 — Views 16264