New member: Roth Investments/TSP

[boogieman065]

Hey everyone,

I'm brand new to retirement planning/investments. My sister got rich working with options and taught me how to use OptionsXpress a little. It seems great but I still have a day job to put all my focus to at the moment.

I make about $50,000 a year out of college and will get a $500-$600 monthly raise in June. I was wondering what are some audacious (yet logical) things I can do with my money that will yield growth.

-I have 10% monthly into a Roth TSP currently.
-I spoke with an agent and got ready to invest $1500 in USAA Cornerstone Moderately Aggressive Fund and $1500 in Flexible Retirement Savings Annuity . After the initial investment, I will continue to put 10% 50/50 into both accounts.

This totals to 20% of my income going into Roth investments/Roth TSP. Is this a smart way to save money for the future?

A little about myself: I'm 24 years old, single, renting a house, no debt/loans. I send $500-$1000 to my parents monthly to support them. I have moderately expensive hobbies (cars/bikes/snowboard).The reason I'm looking into investment is to protect my money from inflation as well as to have growth for the future (for retirement/buying a home/medical emergency).

[jpg7n16]

Hey everyone,

I'm brand new to retirement planning/investments. My sister got rich working with options and taught me how to use OptionsXpress a little. It seems great but I still have a day job to put all my focus to at the moment.

I make about $50,000 a year out of college and will get a $500-$600 monthly raise in June. I was wondering what are some audacious (yet logical) things I can do with my money that will yield growth.

You should not use options trading strategies as you're brand new to investments. Why would the guy who's brand new to this jump into the most aggressive strategy out there??

-I have 10% monthly into a Roth TSP currently.
-I spoke with an agent and got ready to invest $1500 in USAA Cornerstone Moderately Aggressive Fund and $1500 in Flexible Retirement Savings Annuity . After the initial investment, I will continue to put 10% 50/50 into both accounts.

You need to speak with a different agent. This advice reeks of commission.

You are young and just starting saving for retirement, you should probably have a growth/aggressive growth strategy.

You also do not make near enough to need an annuity. I'm an advisor. I can tell a commissioned sale when I see one. This is one of those.

You don't need a Flexible Retirement Annuity. You need a standard Roth IRA. They're free at most reputable brokerage firms. They give you more investment options.

I would do the following:

- Take the match at work in standard 401k
- Max your Roth IRA
- Up your plan at work until you're in the 15-20% range of your income

Annuities play a role in financial planning, more common for those who make too much and have maxed out their other retirement savings vehicles. Wait until you are maxing your plan at work (this year $17,500) and have maxed your IRAs for the year (this year $5500), only then consider a deferred retirement annuity.

This totals to 20% of my income going into Roth investments/Roth TSP. Is this a smart way to save money for the future?

A little about myself: I'm 24 years old, single, renting a house, no debt/loans. I send $500-$1000 to my parents monthly to support them. I have moderately expensive hobbies (cars/bikes/snowboard).The reason I'm looking into investment is to protect my money from inflation as well as to have growth for the future (for retirement/buying a home/medical emergency).

As a retirement savings goal for someone just starting out, I would go with a retirement date mutual fund. Find one that roughly matches your expected retirement date and start with that.

[Like2Plan]

Hey everyone,

I'm brand new to retirement planning/investments. My sister got rich working with options and taught me how to use OptionsXpress a little. It seems great but I still have a day job to put all my focus to at the moment.

I make about $50,000 a year out of college and will get a $500-$600 monthly raise in June. I was wondering what are some audacious (yet logical) things I can do with my money that will yield growth.

-I have 10% monthly into a Roth TSP currently.
-I spoke with an agent and got ready to invest $1500 in USAA Cornerstone Moderately Aggressive Fund and $1500 in Flexible Retirement Savings Annuity . After the initial investment, I will continue to put 10% 50/50 into both accounts.

This totals to 20% of my income going into Roth investments/Roth TSP. Is this a smart way to save money for the future?

A little about myself: I'm 24 years old, single, renting a house, no debt/loans. I send $500-$1000 to my parents monthly to support them. I have moderately expensive hobbies (cars/bikes/snowboard).The reason I'm looking into investment is to protect my money from inflation as well as to have growth for the future (for retirement/buying a home/medical emergency).

Some additional questions--Are you in the military or civilian? Are you planning on a pension? Does your job require a lot of moves? (Wondering what the time horizon for purchasing your home-soon, 5 or 10 years or after you retire? )

No matter how you answer the above questions, I really don't like the USAA Flexible Retirement Savings Annuity at this time (especially for someone so young--you won't see much growth in this investment). The interest that is being paid is very low and will not keep up with inflation.

Up to $9,999 1.00%
$10,000 - $24,999 1.15%
$25,000 - $49,999 1.65%
$50,000 - $99,999 1.70%
$100,000 - $499,999 1.75%
$500,000 - $999,999 2.00%
$1,000,000 or more 2.05%

The guaranteed interest is only 1%.
There are surrender fees:

During Contract Year
1 Surrender Charge 7%
2 Surrender Charge 7%
3 Surrender Charge 7%
4 Surrender Charge 6%
5 Surrender Charge 5.2%
6 Surrender Charge 4%
7 Surrender Charge 3%
8 Surrender Charge 0


There is a $30 annual charge if you have a balance less than $5,000

[boogieman065]

Thank you everyone, I will not go on with the USAA investments and seek the Roth IRA.

I'm in the military, the earliest I would buy a home is in 2016 when I move out of my current duty station (Upstate NY).

I am not trading options, I was only taught how to but I do not know the market well enough to pursue it actively. I need a more hands off account.

Would maxing my Roth TSP and Roth IRA be sufficient? Those combined will be about 20% of my pay already.

[smk]

Thank you everyone, I will not go on with the USAA investments and seek the Roth IRA.

I'm in the military, the earliest I would buy a home is in 2016 when I move out of my current duty station (Upstate NY).

I am not trading options, I was only taught how to but I do not know the market well enough to pursue it actively. I need a more hands off account.

Would maxing my Roth TSP and Roth IRA be sufficient? Those combined will be about 20% of my pay already.

you will find there is more than one school of thought out there on how to manage your finances. it seems you found a crowd who focuses on industry standard rules of thumb. (e.g. invest aggressively when you are young as it will hedge against the impact of inflation over the long run. often the theory to support this is the risk of stocks go down over time. it is true that the risk of losing nominal dollars goes down if you wait like 30 years. however, the risk of losing purchasing power, which is why you have the money to begin with only goes up over time. since the reason to have money is to pay expenses, this argument is also false.) my bias is that you need to plan for your actual situation, or your actual expenses and so you need to see how your investments do against what you need them for. i suggest you look for yourself to see what YOU are comfortable with, which i will explain below.

a few points here: options may or may not be risky, it depends upon how they are used. but it is a good idea to get a better understanding of how the underlying instruments upon which you are trading the options work before you increase the complexity with their bifurcated payoff.

putting funds in annuities has little if any value for anyone saving for retirement. the additional fees of the life insurance and fund management typically swamp and benefits of tax deferral. the main reason to look at insurance products is for insurance - protection against living too long and inflation where something like an inflation protected longevity annuity can be useful for some people, but probably not when you are so young. that market is still developing.

placing money in iras is generally a good idea as long as you don't need the money for liquidity. the decision whether to use roth or trad ira depends upon your tax rate now and what you expect your tax rate to do in the future. for example, if you expect a period of unemployment after you leave the military and a substantial drop in your tax rate, it may work to shelter taxable income now and convert it to a roth when your tax rate falls. you can use the breakeven tax rate formulas here Integrated Financial Westchester and NYC - Integrated Financial Education highlighted in yellow to determine for yourself which approach is better. they are only for bonds.

as for investing aggressively when you are young to protect against inflation - the problem with that argument is that in periods of high inflation the aggressive investments (various stocks) tend to do very poorly. the shorter term fixed income type investments you were criticized for holding actually did much better. there is nothing wrong with being patient. you are investing to pay your expenses when you retire. there is a free calculator (TIP$TER Financial Planner and Portfolio Simulator: Live Smart and Prosper(TM)) where you can run your actual situation and see how well your investment strategy will hold up. sometimes aggressive strategies do very well, sometimes they leave you destitute - that is why they are called aggressive. take a look for your self to see what you are comfortable with. they will show you how your strategy compares against tips, which are the best inflation protection available and a good proxy for your future expenses. you can put in your expected savings to see what is enough as well. always best to see with your own eyes...

[smk]

sorry, this was a duplicate and i can't seem to delete it

[jpg7n16]

I need a more hands off account.

Then a retirement date type fund is where it's at. You don't have to do anything really except keep adding money to it.

Would maxing my Roth TSP and Roth IRA be sufficient? Those combined will be about 20% of my pay already.

As stated above, I would do the max to a Roth IRA, and the rest to your STANDARD TSP up to 20% total.

This gives you a good hedge against tax rates both now and in the future.

placing money in iras is generally a good idea as long as you don't need the money for liquidity.

And since OP stated they're using the funds for retirement savings, that's where it should go.

Beyond the 20% mark, and when saving for non-retirement goals, I would advise building up assets in liquid taxable accounts.

as for investing aggressively when you are young to protect against inflation - the problem with that argument is that in periods of high inflation the aggressive investments (various stocks) tend to do very poorly.

The problem with your argument is that it assumes you can predict in advance how long the period of high inflation will last, and just how high it will go. It also ignores that OP has roughly a 40 year time horizon before needing his funds, and stocks over any 40 year period vastly outpace inflation.

Or are you saying that you expect a 40 year period of double-digit inflation? OP is 24 and has 40 years to go. Sure there will be periods of high inflation, but even on an after inflation basis, stocks are expected to do very well over 40 years. MUCH better than any other asset class out there.

Of course if you wanted to lock in a 0.43% gain after inflation, you could buy a 30 year TIPS today. So what if stocks beat inflation by way more than that?


Admittedly, stocks had a negative return after inflation in the 70's (-1.45%). But what about the 60's? Nope, 5.13% on average after inflation. The 80's? Nope, 11.97% after inflation.

And if you started in 1960-1989, you'd have 5.07% after inflation.

CAGR of the Stock Market: Annualized Returns of the S&P 500


You can always find a 10 year period where stocks didn't look that great compared to some measure. A few 10 year periods even lost money. You cannot however do the same for any 30-40+ year period of time, which is what the OP should be concerned about.

Age 24 = roughly 40 years to begin retirement, and another roughly 30 years in it.

[Like2Plan]

Then a retirement date type fund is where it's at. You don't have to do anything really except keep adding money to it.
As stated above, I would do the max to a Roth IRA, and the rest to your STANDARD TSP up to 20% total.
This gives you a good hedge against tax rates both now and in the future.

I am making a couple of assumptions here, but I would expect about 30% of the OP's income is tax free in the form of BAS and BAH and would put the OP in one of the lowest tax brackets right now. It does not make any sense to me to be contributing to a standard TSP at this stage of the game. Later on, the OP will be in a higher tax bracket and the standard TSP would make more sense.
Assuming the OP stays in for a full career and retirement (OP didn't say whether this was the intent), the benefits are fully taxable.

[smk]

I am making a couple of assumptions here, but I would expect about 30% of the OP's income is tax free in the form of BAS and BAH and would put the OP in one of the lowest tax brackets right now. It does not make any sense to me to be contributing to a standard TSP at this stage of the game. Later on, the OP will be in a higher tax bracket and the standard TSP would make more sense.
Assuming the OP stays in for a full career and retirement (OP didn't say whether this was the intent), the benefits are fully taxable.

it is possible you are correct, i ran it for 60 years with low rates and found a bump in the tax rate from 10% to 28% made it marginally better to use a taxable account over a trad ira. this should be investigated.

[jpg7n16]

there is a difference between the term hedge and the term outperformance. hedge means when one thing goes up, the other goes down, so investing in both at the same time lowers risk. when inflation goes up, stocks go down so stocks are not a hedge. as for outperformance, if stocks outperform inflation by more than TIPs, then they produce more value than inflation. if they underperform inflation, then they produce less value than inflation. professor zvi bodie produced a proof that the risk of underperformance goes up over time, not down. professor siegel, who tends to like stocks because he finds the returns mean reverting agrees with professor bodie that the risk goes up over time. i am suggesting the op look at the risk to decide for themselves whether or not they are comfortable. you can check the long run risk of stock market investing: is equity investing hazardous to your client's wealth by zvi bodie for his proof (faj i think june 2011

So you're saying stocks are bad because they'll do better than inflation, not just hedge against it?

not sure I follow you there.

And I'm glad you have an article that proves the future. That's interesting.

I'd be interested in what historical data he uses to prove that you cannot rely on historical data.

i don't make predictions for the future based purely on the past. some argue that we may be forced to inflate our way out of a debt crisis. i can't predict the future, but i can plan for the various possibilities to see what i think makes sense.

I find it odd that you seem to advocate TIPS for everyone, when there is a debt crisis based on Treasury debt like those TIPS you're recommending.

see Integrated Financial Westchester and NYC - Investing When Rates Are Low for a discussion of active vs passive strategies in fixed income.

Um okay, it's an article about how to ladder TIPS. That's all. Nothing amazing. I don't see how that somehow makes TIPS better than stocks for long term protection against inflation.

i think prospercuity uses data from 1870 to present. again i don't use the past alone to predict the future.

Great. The link I posted (CAGR of the Stock Market: Annualized Returns of the S&P 500 ) uses 1/1/1871 to 12/31/2011. What's your point?

you are arguing my point here, not yours. yes, the risk in 40 years of losing nominal dollars goes down. but the op does not buy goods in 40-70 years in today's nominal dollars.

Which is why I said when you look at the after inflation yields over 30-40 year periods for stocks, that TIPS don't even come close. How does that prove your point again?

i am suggesting they protect their lifestyle, not the original $100. you need to look at the actual numbers..sorry, but this is just the way it works...

And I am suggesting that they not only protect their lifestyle, but rather improve it.

You need to look at the actual numbers for 30-40 year periods of stock returns, inflation adjusted. All do better than 30 year TIPS.

Here are the facts on the stock market:

30 year timeframe: (all figures on an annual basis) Nominal // Inflation Adjusted
Worst return ever: 5.09% // 3.24%
Best return ever: 13.82% // 10.56%
Average: 9.41% // 6.63%

All the data is available at the link above. Stocks (in your average 30 year period) will return 6.63% above inflation. TIPS just can't match that. Sorry, but that's just the way it works.

[jpg7n16]

if they have $100 today and it buys the same thing as $1,000 in 70 years, it will be of little consolation to them to know they did not lose any of their original $100. if that's all they have, they will see a reduction in lifestyle of 90%. i am suggesting they protect their lifestyle, not the original $100. you need to look at the actual numbers..sorry, but this is just the way it works...

One further point that I hope will put an end to the ridiculous arguemnt that TIPS are the perfect retirement investment.

If TIPS by definition return Inflation + a small premium, and an investor saves 10-20% of his income for 40 years, he will have by definition protected 10-20% of 1 year's income each year. After 40 years, he will have built up 4-8 years of expenses + a small premium of say 2-3 years (6-11 years total), in order to "protect" their lifestyle as you suggest.

Which would be great if people at age 65 were only expected to live to age 71-76. But you will have run out of money by then.

As the life expectancy for someone attaining age 65 should be at least another 15 years (expected) you need more than inflation protection. Life Expectancy for Social Security


In order to protect your lifestyle, with TIPS you should save 50% of your aftertax income each year. That way at retirement you can have just as much purchasing power as you used during your working years.

[smk]

So you're saying stocks are bad because they'll do better than inflation, not just hedge against it?

not sure I follow you there.

And I'm glad you have an article that proves the future. That's interesting.

I'd be interested in what historical data he uses to prove that you cannot rely on historical data.

sarcasm is not helpful here. it does not get at the truth. in particular it is very hard to argue against a position that you did not read or understand. when you invent a position and attribute it to me so you can argue against it, it is very convenient from your perspective. however, it does not deal with the actual points [U]I[U] am making...stocks are not inherently good or bad. they can do better or worse than inflation. the risk levels you face in stocks increase over time. read Integrated Financial Westchester and NYC - Stocks for the Long Run? for the impact of the equity decision. in particular, references to the troubles of the pension industry (i am told there probably wont be a defined benefit pension industry in about 5 years) who use your model vs the untroubled life insurance industry that use my model should be of interest.

In order to protect your lifestyle, with TIPS you should save 50% of your aftertax income each year. That way at retirement you can have just as much purchasing power as you used during your working years.

in some case studies, non-investment risk solutions were able to replace the use of equities to enhance lifestyle over the long run. so your argument that everyone would die of starvation if they did not buy stocks may not be valid. some people may prefer a different approach and i do not see why they should be denied it if it can work for them. telling such people to put on blinders and buy stocks may not serve them well at all.

I find it odd that you seem to advocate TIPS for everyone, when there is a debt crisis based on Treasury debt like those TIPS you're recommending.


Um okay, it's an article about how to ladder TIPS. That's all. Nothing amazing. I don't see how that somehow makes TIPS better than stocks for long term protection against inflation.

a professional money manager designs a benchmark against which to compare his performance. he will be willing to take on a certain amoutn of risk, typcially measured in tracking error vs the benchmark in order to outperform it in a responsible manner. the goal is not to make a killing, but outperform his benchmark marginally over a long period of time. a laddered portfolio of tips are widely viewed as a good proxy for an individual's expenses. that is as far as my recommendation for tips goes - it is a good benchmark and can be used as home base for risk averse individuals. risk levels can be determined from there.

as for the article, i was addressing [I]your[I] point that you would have to lock in 30 year TIPs at 0.43%. with either active or passive strategies, you would not do that as suggested by the article. in the 1970's, i suspect if TIPs were around they would have done a much better job protecting against inflation than stocks. in the weimar republic, that goes 100x better assuming the government was not significantly funded by tips. this point addresses your question on why using historical returns in the US is not sufficient. the US history you rely upon is during a period when the US was a world power; that status is not guaranteed in the next 70 years. there simply is not enough history around to consider everything we should from a planning perspective. it is a widely known fact and the reason why monte carlo simulation is recommended in addition to pure historical analysis.

Which is why I said when you look at the after inflation yields over 30-40 year periods for stocks, that TIPS don't even come close. How does that prove your point again?

you are arguing that my point is not a point i am making. tips should do better in periods of high inflation, and they were not around prior to 1997 so a direct comparison is not something you can make one way or another. from 1997 to 2011, i believe the barclays average for tips had returns >2% over inflation.

And I am suggesting that they not only protect their lifestyle, but rather improve it.

you can improve or destroy it with your strategy. the people who live it must deal with the consequences. i am only recommending they address the consequences consciously and make a decision they feel comfortable with. as they say, the best plans consider the worst possibilities.

Here are the facts on the stock market:

30 year timeframe: (all figures on an annual basis) Nominal // Inflation Adjusted
Worst return ever: 5.09% // 3.24%
Best return ever: 13.82% // 10.56%
Average: 9.41% // 6.63%

you are not addressing the point that i made. zbi bodie's article made the comparison of stocks vs zero coupon treasuries as a riskless alternative. i explained that these securities have an inflation component plus a premium.

One further point that I hope will put an end to the ridiculous arguemnt that TIPS are the perfect retirement investment.

If TIPS by definition return Inflation + a small premium

here you argue against your own point. all along you were arguing that tips returns were inflation plus 0. now you admit a premium. the premium is a problem for your argument, especially to the extent they match fixed rate treasuries over the long run.

i am arguing that the risk to stocks goes up over time, and people should make a conscious decision about how much risk they are willing to take in the same way a professional money manager does (i would substitute minimum lifestyle for tracking error as a measure). i am using zvi bodie's article as the basis. if you do not read the article you will not be able to counter his points. you have yet to address the issue at all. as i recall, the risk of stocks is reflected in the cost of insuring them. insuring them agains a loss in performance vs a risk free alternative of zero coupon treasuries of the same maturities goes up the longer the maturity. the cost of insurance is determined by the cost of buying a put option today to cover the risk for the time period. if the risk went down, the cost of the option would go down. but the cost goes up over time. this has a lot to do with the fact that extreme events come more frequently and cause more severe losses. when you lose, the amount of the loss can be so large that it weighs heavily on the cost of the option. if you priced an option vs a zero loss, it would probably go down after very long periods. but run against treasuries they go up...fyi, using real returns on wilshire 5000 from 1971-2011, you get 4.01%, versus treasuries 3.6% (constructed from frb data as bond prices do not go back that far). constructing tips from a regression after 2000 with lower returns than suggested by the barclays average and projecting it back to 1971 gives 4.47%. this was heavily impacted by the inflation accrual during the 1970's. stocks can underperform bonds for long periods. when you run tips on retirement calculators such as esplanner (by prof kotlikoff) or tipster you see scenarios where stocks underperform...and the change in volatility is profound. people may want to know about that.

[jpg7n16]

sarcasm is not helpful here.

Oh I def disagree. Your argument is based on an article with "proof" of the future.

the risk levels you face in stocks increase over time. read ... for the impact of the equity decision. in particular, references to the troubles of the pension industry (i am told there probably wont be a defined benefit pension industry in about 5 years) who use your model vs the untroubled life insurance industry that use my model should be of interest.

And I am told daily that the US Gov will default on it's debt, and the stock market will crash tomorrow. Just because you're told something doesn't mean it's true.

in some case studies, non-investment risk solutions were able to replace the use of equities to enhance lifestyle over the long run. so your argument that everyone would die of starvation if they did not buy stocks may not be valid. some people may prefer a different approach and i do not see why they should be denied it if it can work for them. telling such people to put on blinders and buy stocks may not serve them well at all.

You're being awfully dim here. I've advocated OP have a retirement date based fund. Which typically includes bonds and other asset classes. I have not advocated 100% into S&P 500 index funds.

a laddered portfolio of tips are widely viewed as a good proxy for an individual's expenses. that is as far as my recommendation for tips goes - it is a good benchmark and can be used as home base for risk averse individuals. risk levels can be determined from there.

And as shown, the amount of savings necessary to provide a complete lifetime of expenses is more than a reasonable person can afford to save.

as for the article, i was addressing [I]your[I] point that you would have to lock in 30 year TIPs at 0.43%.

Is that not the current yield on the 20 year TIPS? Are you saying that by laddering shorter term maturities (some of which currently have negative yields), that you can somehow make more than that?

Please provide the CUSIPS and quantities of a 20 year TIPS ladder that would yield more than that, based on today's yields.

My statement stands for someone enacting your strategy today. You can get 0.43% + inflation on a 20 year TIPS, and stand no real chance of outperforming inflation by more than that. Or you can get a proper portfolio, and expect to do much better. Your choice.

in the 1970's, i suspect if TIPs were around they would have done a much better job protecting against inflation than stocks.

For that specific 10 year period, sure. But not for the 10 years prior or 10 years afterward, or the 30 year period in aggregate. You can cherry pick a 10 year period where TIPS do better, but you can't cherry pick a 30+ year period, because it doesn't exist.

here you argue against your own point. all along you were arguing that tips returns were inflation plus 0. now you admit a premium. the premium is a problem for your argument, especially to the extent they match fixed rate treasuries over the long run.

Please read my post again. My argument is stocks are still better than TIPS for a long term investor. As all evidence points to any 30+ year period of time yielding at the very worst of all time 3.24% over inflation, with an average of over 6% over inflation, and you're struggling to find evidence that TIPS at one point made 2% over inflation (and currently offer MUCH less) it's pretty clear what's the best decision for a long term investor.

Believe what you want. Cause you are obviously ignoring the facts.

[smk]

+sarcasm is not helpful here."

Oh I def disagree...

i am not going to engage someone who believes sarcasm and the misrepresentation therein is a professional way to argue a point. for others i will prove my point here and move on:

Your argument is based on an article with "proof" of the future.

this is a statement of someone who did not read the article...it is false. buying an option today is not proof of the future, it is proof of the price of the option today.

Is that not the current yield on the 20 year TIPS? Are you saying that by laddering shorter term maturities (some of which currently have negative yields), that you can somehow make more than that?

Please provide the CUSIPS and quantities of a 20 year TIPS ladder that would yield more than that, based on today's yields.

My statement stands for someone enacting your strategy today. You can get 0.43% + inflation on a 20 year TIPS, and stand no real chance of outperforming inflation by more than that. Or you can get a proper portfolio, and expect to do much better. Your choice.

this is a misrepresentation of my point that anyone with a background in finance would understand. if someone has 40 years before retirement with 30 years in retirement and passively purchases a laddered portfolio of tips, upon the maturity of each instrument they would need to reinvest at the then market rates. historically the rates on these instruments have been higher than today, so it is possible they would receive an income level that is higher. people who have been doing this all along would probably already have a laddered portfolio with an average yield that is much higher. active portfolio managers may well decide that they can beat the tips benchmark today and hold off locking in rates until they go up. they may patiently wait for better opportunities. there is nothing wrong with this strategy.

And as shown, the amount of savings necessary to provide a complete lifetime of expenses is more than a reasonable person can afford to save.

my analysis using esplanner proves this wrong.

Please read my post again. My argument is stocks are still better than TIPS for a long term investor. As all evidence points to any 30+ year period of time yielding at the very worst of all time 3.24% over inflation, with an average of over 6% over inflation, and you're struggling to find evidence that TIPS at one point made 2% over inflation (and currently offer MUCH less) it's pretty clear what's the best decision for a long term investor.

first, i said above

...fyi, using real returns on wilshire 5000 from 1971-2011, you get 4.01%, versus treasuries 3.6% (constructed from frb data as bond prices do not go back that far). constructing tips from a regression after 2000 with lower returns than suggested by the barclays average and projecting it back to 1971 gives 4.47%. this was heavily impacted by the inflation accrual during the 1970's. stocks can underperform bonds for long periods

the improvement of stocks over TREASURIES for 40 years was marginal, and those happen to be the LAST 40 years, not hand picked. given that corporates, mbs and higher risk debt securities have tended to outperform treasuries, this suggests the most recent 40 year period stocks have underperformed bonds. tips were not outstanding during this entire period, but there is reason to believe they would have outperformed stocks in the last 40 year period. tips were not outstanding for 40 years as you know, so it is disengenuous to claim i can't find long periods when tips outperformed stocks because stocks have always beat tips. you already know the reason no one can find long periods where tips explicitly outperformed stocks is because tips did not exist for long periods.

second,

the first paragraph of the article in question: I think the most dangerous issue in investing is the perpetuated assertion that a diversified global portfolio of stocks is not risky over the long run. Even though this assertion is demonstrably false, many investment professionals and academics continue to hold this belief and vigorously defend their position. Among the defenders of stocks being safe in the long run is Jeremy Siegel. Jeremy and I are on opposite sides of this question. All of the financial economists I know in academia, including the late Paul Samuelson and Robert Merton, agree with me about the fallacy of time diversification.

in a debate with zvi bodie, jeremy siegel agreed that the risk in stocks does go up over time. he likes stocks because it does not go up as much as he thinks it should. there are no other financial economists who seem to be agreeing with your point. paul samuelson and robert merton are nobel prize winners. zvi bodie is the author of the investments textbook used by the cfa institute. to argue against my real point, you are going to have to get through these professors and it appears you do not have the support of a single financial economist. the information you supplied from the cagr web site is widely available to every professor who does not agree with your point of view. you are going to have to do far, far better than that.

at this point this discussion is over. i will not engage someone who behaves in the manner you have demonstrate here.

[kv968]

this is a misrepresentation of my point that anyone with a background in finance would understand. if someone has 40 years before retirement with 30 years in retirement and passively purchases a laddered portfolio of tips, upon the maturity of each instrument they would need to reinvest at the then market rates. historically the rates on these instruments have been higher than today, so it is possible they would receive an income level that is higher. people who have been doing this all along would probably already have a laddered portfolio with an average yield that is much higher. active portfolio managers may well decide that they can beat the tips benchmark today and hold off locking in rates until they go up. they may patiently wait for better opportunities. there is nothing wrong with this strategy.

my analysis using esplanner proves this wrong.

Could you give me a ballpark estimate of how much of my current income I'd have to save using your analysis with a laddered TIPS portfolio to "match my expenses" in retirement? I'm still finding it hard to believe that without saving practically 50% or more of my current income, a laddered TIPS portfolio would provide enough income in retirement.

Say the hypothetical situation is that I'm 30 years old wanting to retire in 35 years, make $50k/year with an annual raise of 2% and figured I'd need $40k/year in retirement in today's dollars. How much of that $50k would I have to save to reach that number just using your approach. With 10 year TIPS currently trading at a premium and a negative real yield and 20 year's not doing much better, how would I go about it?