Bill Bernstein wrote: Sun Oct 12, 2025 11:11 am
FundQuant wrote: Sun Oct 12, 2025 10:29 am[1] Since 1999, when that book was published, the investor using TIPS as their long duration matching instrument, did significantly worse than investors using stocks as their long duration matching instrument. Bonds might have been less risky in the short-run, but were much riskier than stocks in the long-run as they increased the probability that you couldn’t match your asset returns to your necessary liability needs.Uh, no. The retiree who annually burned a real 5% of their initial portfolio starting on 1/1/2000 would have run out of money in 2016 (and was sweating bullets after just 2 years). A TIPS ladder bought in 2000 at rates not much higher than today’s did not run out of money until about 2029. (underline added)
A maximum length TIPS ladder built in 2000 had many missing rungs since at that time TIPS matured in only seven years: 2002, 2007-2010, and 2028-2029. But we could have covered the missing years to some extent by buying extra amounts of the TIPS maturing just before or after a gap.
On the plus side, yields were much higher than they are now. For example, the 10-year 4-1/4% coupon TIPS maturing January 2010 sold at auction 1/12/2000 with a yield of 4.338%. And the 30-year 3-5/8% coupon TIPS maturing April 2028 shown in the graph below sold on the secondary market with a yield of 3.7% – 4.4% during 2000.
(click the graph to open an interactive version)
Here is a ladder built in January 2000 to produce an average of $10K per year [2] in January 2000 dollars. The bottom row shows it has total proceeds over 29 years of $289,745 [3] at a cost of $165,458 [4]. This corresponds to an average annual withdrawal rate of …
6.0% = (289745 / 29) / 165458
Code: Select all
Row ColA ColB ColC Col D Col E Col F Col G Col H Col I Selected Formulas
2 Desired Annual Amount -> 10,000
3 Intrest YTM
4 Older Needed Annual Total 4.300%
5 Yr Year Mult Coupon Bonds Princ Intrest Proceeds CostCode: Select all
6 29 2029 1 3.875% - 9,627 373 10,000 8,956 E6: =SUM(G$5:G5)
7 28 2028 7.2 3.625% 373 69,121 2,506 72,000 61,609 F7: =MAX(0,(E$2*SUM(C$5:C7)-SUM(H$5:H6)-E7)/(1+D7))
8 27 2027 2,879 - - 2,879 - G8: =F8*D8
9 26 2026 2,879 - - 2,879 - H9: =SUM(E9:G9)
10 25 2025 2,879 - - 2,879 - I10: =-PV(I$4,$A10,$G10,$F10,0)
11 24 2024 2,879 - - 2,879 - | | |
12 23 2023 2,879 - - 2,879 - | | |
13 22 2022 2,879 - - 2,879 - | | |
14 21 2021 2,879 - - 2,879 - | | |
15 20 2020 2,879 - - 2,879 - | | |
16 19 2019 2,879 - - 2,879 - | | |
17 18 2018 2,879 - - 2,879 - | | |
18 17 2017 2,879 - - 2,879 - | | |
19 16 2016 2,879 - - 2,879 - | | |
20 15 2015 2,879 - - 2,879 - | | |
21 14 2014 2,879 - - 2,879 - | | |
22 13 2013 2,879 - - 2,879 - | | |
23 12 2012 2,879 - - 2,879 - | | |
24 11 2011 2,879 - - 2,879 - | | |
25 10 2010 11.8 4.250% 2,879 63,485 2,698 69,062 63,232 | | |
26 9 2009 1 3.875% 5,577 4,258 165 10,000 4,125 | | |
27 8 2008 1 3.625% 5,742 4,109 149 10,000 3,925 | | |
28 7 2007 2 3.375% 5,891 13,649 461 20,000 12,899 | | |
29 6 2006 6,351 - - 6,351 - v v v
30 5 2005 6,351 - - 6,351 - E30: =SUM(G$5:G29)
31 4 2004 6,351 - - 6,351 - F31: =MAX(0,(E$2*SUM(C$5:C31)-SUM(H$5:H30)-E31)/(1+D31))
32 3 2003 6,351 - - 6,351 - G32: =F32*D32
33 2 2002 4.3 3.625% 6,351 10,850 393 17,594 10,712 H33: =SUM(E33:G33)
34 1 2001 6,745 - - 6,745 - I34: =-PV(I$4,$A34,$G34,$F34,0)Code: Select all
35 Sum 28.3 107,901 175,099 6,745 289,745 165,458 C35: =SUM(C6:C34)- I modified the naked quote you referenced in your post, Bill, to include the header information identifying FundQuant as its author and time of the post. It also includes a link (the up-arrow inside a circle) that a reader can click to see the complete post the quote is taken from. It’s courteous to readers to include this information by just clicking the [“] button at the top-right of the post you’re quoting from.
- For simplicity, I assume TIPS can be purchased in fractional amounts instead of the actual $1,000 face value increments.
- The $290K of total proceeds is composed of $175K of principal plus $115K of interest received over the 29 years.
- The $165K cost is computed for each bond in column I using the Excel PV function at an assumed yield of 4.3% for each TIPS. This was about the yield of the Jan 2010 at its 1/12/2000 auction and the April 2029 on the secondary market at that time. Because they cover the seventeen gap years 2011-2027 these two TIPS make up most of the “ladder”.
