TIPS for cash component?

Discussion of the Cash portion of the Permanent Portfolio

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MediumTex
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Re: TIPS for cash component?

Post by MediumTex » Mon Aug 09, 2010 10:18 pm

foglifter wrote: Thanks for a good input, MediumTex. Do you know if the interest payments from I bonds are taxable at the state level?
I do not believe they are taxable at the state level.
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LNGTERMER

Re: TIPS for cash component?

Post by LNGTERMER » Tue Aug 10, 2010 11:37 am

I view the PRPFX/EDV 90/10 strategy and the ibonds in the PP cash portion to be the two best ideas I have come up with in the whole PP discussion.
MediumTex, that is very interesting, are you saying instead of SHY for the cash portion we hold PRPFX/EDV 90/10? It would be nice if you can break down the holdings of the assets you are referring to. Also, is there a chart that one can look at see the progression of the Ibonds? This is an area I need to educate myself in :D.
I do agree 10 to 20% of the cash portion in SHY would suffice if there is a better and yet safer way to get returns.
Thanks
Last edited by LNGTERMER on Tue Aug 10, 2010 11:57 am, edited 1 time in total.
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foglifter
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Re: TIPS for cash component?

Post by foglifter » Tue Aug 10, 2010 11:53 am

LNGTERMER wrote: :D
I view the PRPFX/EDV 90/10 strategy and the ibonds in the PP cash portion to be the two best ideas I have come up with in the whole PP discussion.
MediumTex, that is very interesting, are you saying instead of SHY for the cash portion we hold PRPFX/EDV 90/10?
No, I believe PRPFX/EDV 90/10 was his idea for the whole PP. It's a good choice for those who wants it as simple as possible.
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Re: TIPS for cash component?

Post by LNGTERMER » Tue Aug 10, 2010 12:00 pm

Thanks foglifter, so in this case I am assuming you would still rebalance if the bands go off sync. How about a ticker for and I bond?
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Re: TIPS for cash component?

Post by foglifter » Tue Aug 10, 2010 12:16 pm

LNGTERMER wrote: Thanks foglifter, so in this case I am assuming you would still rebalance if the bands go off sync. How about a ticker for and I bond?
I'm not sure if I bonds have tickers... maybe you could just treat it as a MM fund - with a share price of $1.
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Re: TIPS for cash component?

Post by MediumTex » Tue Aug 10, 2010 12:33 pm

foglifter wrote:
LNGTERMER wrote: Thanks foglifter, so in this case I am assuming you would still rebalance if the bands go off sync. How about a ticker for and I bond?
I'm not sure if I bonds have tickers... maybe you could just treat it as a MM fund - with a share price of $1.
Ibonds are not traded and do not fluctuate in value.

You just buy them and there is an interest adjustment every month that is based on CPI and the bond's fixed rate when issued.

As I mentioned in my earlier post, the free Savings Bond Wizard software allows you to track savings bond values from month to month.
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LNGTERMER

Re: TIPS for cash component?

Post by LNGTERMER » Tue Aug 10, 2010 12:48 pm

Thanks,
PRPFX/EDV 90/10
This is very simple, but what is your rational for 10% EDV? Why not just use PRPFX as is?
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Re: TIPS for cash component?

Post by MediumTex » Tue Aug 10, 2010 1:54 pm

LNGTERMER wrote: Thanks,
PRPFX/EDV 90/10
This is very simple, but what is your rational for 10% EDV? Why not just use PRPFX as is?
PRPFX does not provide you with the LT treasury exposure that HB recommended.  EDV helps fill this gap and causes PRPFX to simulate the HB PP performance more closely.

There are some charts over on the bogleheads board showing how EDV dampens the volatility of PRPFX.

It sounds simple, but a lot of thought (and trial and error) went into it.
Only strength can cooperate. Weakness can only beg.
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Re: TIPS for cash component?

Post by SmallPotatoes » Tue Aug 10, 2010 11:23 pm

MediumTex wrote:
LNGTERMER wrote: Thanks,
PRPFX/EDV 90/10
This is very simple, but what is your rational for 10% EDV? Why not just use PRPFX as is?
PRPFX does not provide you with the LT treasury exposure that HB recommended.  EDV helps fill this gap and causes PRPFX to simulate the HB PP performance more closely.

There are some charts over on the bogleheads board showing how EDV dampens the volatility of PRPFX.

It sounds simple, but a lot of thought (and trial and error) went into it.

Hey, MT:  What about 90/10 PRPFX + A 30-year bond ladder?

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Re: TIPS for cash component?

Post by MediumTex » Wed Aug 11, 2010 8:37 am

SmallPotatoes wrote: Hey, MT:  What about 90/10 PRPFX + A 30-year bond ladder?
The bond ladder probably doesn't give you enough volatility for purposes of this strategy.

EDV provides a lot of desired volatility in a small package (probably about 1.5 x what a bond ladder would provide).

EDV has very low expenses and Vanguard lets you buy and sell it for free. 
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