Retirement Weekly: How to use TIPS to build up retirement wealth

by | Nov 10, 2023 | Stock Market

A 40-year-old investing for retirement would do well to put more than half of his portfolio in bonds. That’s hardly conventional wisdom, of course. The typical glide path used by a 40-year-old’s target-date fund allocates no more than around 10% to bonds. For example, the Vanguard Target Date Retirement Fund 2050 VFIFX currently has 7.1% invested in domestic bonds and 2.8% in international bonds.

The key to why it makes sense to flout conventional wisdom, however, is not for my hypothetical 40-year-old to invest in just any bonds, but instead in TIPS—the Treasury’s Inflation-Protected Securities. TIPS are treasury bonds that provide a guaranteed return above inflation (as measured by the Consumer Price Index). TIPS yields are now higher than they’ve been since 2008, and their high yields allow us to construct a very low-risk but surprisingly profitable retirement investment strategy. Credit for discovering this strategy goes to Allan Roth, founder of WealthLogic and an investment adviser who has made a career of identifying simple ways for an individual investor to duplicate complex investment products at a fraction the cost. Perhaps the closest analog to Roth’s TIPS + equities strategy is a Fixed Index Annuity sold by …

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