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Time to Add Some TIPS

When I decided to make our Asset Allocation Update to Include More International Exposure [1] I spent a lot of time reevaluating our entire portfolio.

Currently our non stock holdings are split between cash and the total bond market. The cash is actually in CD Ladders [2], but I’ve found the ladders renewing at such low rates, that I’m tempted to rethink that strategy.

I first considered the Ally Bank [3] 5 year CD strategy with low early withdrawal penalties, before researching TIPS.

Treasury Inflation Protected Securities

A lot of my research and reading on treasury inflation protected securities (TIPS) started with the academic papers on the inflation-protected securities (TIPS) [4] site on Bogleheads (one of my favorite investing forums).

The rationale behind including TIPS as part of the bond holding is for inflation protection. Here is a more detailed description from the Boglehead wiki:

Because unexpected inflation is the biggest enemy of fixed income securities and because TIPS offer unique inflation protection, investors should consider including TIPS in their investment portfolio.

Adding TIPS

I decided that I still plan to hold 12% in non-stock holdings, but I’ll be splitting it 50/50 between the total bond index and TIPS.

Of course it complicates things somewhat with trying to include the new emerging market ETF, but I think I found a way to make it work.

Another alternative to TIPS are I bonds, which you can now Use Your Tax Refund to Purchase I Bonds [5].

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