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as far as TIPs go, why those over something simple like an ETF? I will probably be doing a total of 100k into this stuff at this point, so transaction costs not completely immaterial, but close.
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All the TIPS funds/ETFs are low duration--6 years IIRC. 2.75% is historically very high for TIPS, so I plan to buy 20-year individual TIPS at auction to lock in that rate. With TIPS, you can increase duration without increasing correlation to equities as much as you would with nominal bonds.
TIPS fund/etf is fine if you don't want to try and lock in that rate.
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right now I'm leaning towards just dumping my SEP all into TLT. I looked at TIP, also the vanguard ETF (just launched), and also thought about getting shorter duration stuff but overall currently like this idea. interest rate risk being my biggest risk but I have more ammo if needed.
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The problem with long term bonds is that as you increase duration, you increase correlation to equities. It turns out that it's more efficient to build a portfolio for Return X with short term treasuries and equities than it is to build it with long term treasuries and equities. Here is the chart I posted awhile back:
"Dcifrthis,
For a given volatility X or return Y, a portfolio of S&P 500 and 5-Year T-Notes had a higher Sharpe Ratio than a portfolio of S&P 500from 1927-Present:
<font class="small">Code:</font><hr /><pre>1927-2006
S&P/LTGB 100/0 90/10 80/20 70/30 60/40 50/50 40/60 30/70 20/80 10/90 0/100
Std Dev 20.2% 18.3% 16.5% 14.7% 13.1% 11.6% 10.3% 9.4% 8.9% 8.8% 9.3%
CAGR__ 10.4% 10.1% 9.8% 9.4% 8.9% 8.5% 7.9% 7.4% 6.8% 6.1% 5.4%
S&P/5YTN 100/0 90/10 80/20 70/30 60/40 50/50 40/60 30/70 20/80 10/90 0/100
Std Dev 20.2% 18.2% 16.3% 14.3% 12.4% 10.6% 8.9% 7.4% 6.2% 5.6% 5.7%
CAGR__ 10.4% 10.1% 9.7% 9.3% 8.9% 8.4% 7.8% 7.3% 6.6% 6.0% 5.3%</pre><hr /> "
The sweet spot is 2-year T-Notes a la SHY (ishares 1-3 year treasury bond ETF), though I have only ran the data from 72-06 on those.