TIPS exclusively in retirement account

[iBond_007]

I like guarantess when it comes to my retirement. While higher possible returns from stocks are enticing, I am not as relaxed about it all. I can buy different kinds of bonds - but I'm thinking of just buying TIPS in my retirement account. I would like some feedback. This is my thinking...

For every pre-tax $ I put away, I am pretty much guaranteed the "same amount" of pre-tax $ when I withdraw the funds. By "same amount" I mean the dollars are adjusted for inflation. For example, if I put away 50% of my gross pay (because I can live on 50% on gross pay), then I will be able to have the same lifestyle when I retire. I know this a broad statement, but you get the idea.

I might get higher overall returns with stocks or bonds, but there are no guarantees.

Lastly, I think it makes more sense to buy the TIPS themselves as opposed to a TIPS fund. Aside from the small fee for the funds, my concern is that the TIPS funds can have volatility. And the whole point to TIPS, for my purpose, is the lack of volatility and guaranteed returns.

I appreciate any thoughts or questions that can add insight or raise issues I am not considering.

Thanks,
Mark

[photo]

I like guarantess when it comes to my retirement.

Fireproof mattress or safe may be your only option. Anyone or anything who promises a guarantee on anything having to do with retirement should be viewed with extreme skepticism.

During periods of deflation, TIPS are adjusted downward by the rate of deflation, as well, so they aren't perfect.

[disneysteve]

If you can meet your retirement savings goals with no growth in your portfolio, then this is a viable option. That simply isn't realistic for the vast majority of people. Without a strong growth component to my portfolio, I'd never be able to retire even though we put away 25% of our income.

[iBond_007]

Photo, deflation is a valid point but since the goal of the TIPS in this case is to track the value of the dollar, deflation is just par for the course. Not to speculate but... if there is prolonged deflation, I can't imagine too high of returns on stocks or bonds. And while nothing is guaranteed, unless the US treasury goes bust (not impossible), the TIPS are guaranteed to give me inflation adjusted dollars.

DisneySteve, I'm not so sure that I'm giving up "higher" returns. Look at stocks over 10 years, they have returned very little. And the rise on stocks after the meltdown occured during measly returns on bonds. I think that if bonds were paying 4% a lot of people would get out of stocks. Just my inflation adjusted $.02

[disneysteve]

DisneySteve, I'm not so sure that I'm giving up "higher" returns. Look at stocks over 10 years, they have returned very little. And the rise on stocks after the meltdown occured during measly returns on bonds. I think that if bonds were paying 4% a lot of people would get out of stocks.

I disagree. I would absolutely not get out of stocks to lock in a 4% return. Over the long run, stocks will do way better than that.

[iBond_007]

I would love better returns but when I step back and compare the stock market of the past century to the stock market of the past 15 years, they appear quite different. Ever since huge 401k dollars and mutual funds have been large parts of the market, the market dynamics have changed a lot. I try to talk myself into staying in stocks but I really have to suspend reality to do so.

[disneysteve]

I try to talk myself into staying in stocks but I really have to suspend reality to do so.

If you believe that something has fundamentally changed in the world and that stocks, which have always out-performed bonds, will no longer do so in the future, then I suppose your plan makes sense. I don't happen to agree with you. I don't believe "this time is different." I think stocks will continue to out-perform bonds, just as they always have. That doesn't mean there won't be select time periods where stocks may under-perform, and that's why you should have a diversified portfolio. I own bonds. I own stocks. I own an REIT. I own gold and commodities. But over time, I expect the stocks to provide growth that the bonds won't.

[feh]

I appreciate any thoughts or questions that can add insight or raise issues I am not considering.

Mark

How old are you? How many years is your anticipated retirement?

Assuming you're young-ish (under 40), this is a likely a poor plan.

[Shewillbemine]

Unless you are retiring in the next 2-3 years, NOT investing in stocks in your retirement plan is a foolish idea. If you are THAT risk-averse about long-term retirement planning, then yes, a safe is your best bet.