Totally agree with your comment on long-term nominal bonds. They can really only be used risk-free for long-term nominal expenses like a fixed rate mortgage. Then again, most people don't stay in their houses that long anyway. When it comes to TIPs, I'm not sure what "risk during the holding period" means. I mean, I get it that the market value goes up and down, but if you are actually "holding" during the holding period there is no risk. If you suddenly need liquidity during the holding period, that's what an emergency fund is for. Or, a liquid portion of your fixed income allocation if you prefer to think about it that way. You don't look to longer-term TIPs to provide liquidity in the short term and you don't look to short-term fixed income to provide protection of purchasing power in the long term.While widely accepted, that definition of 'risk free' doesn't make any sense to me for 30 year nominal bonds due to interest rate / inflation sensitivity not being accounted for. Yes, you get what you expected to get from a nominal perspective, but how much buying power does that have may have shifted dramatically. As you shorten duration these risks are reduced significantly.
Which means TIPS/iBonds would fit my definition except TIPS have more risk during the holding period due to interest rate sensitivity. iBonds have weird/unique risks related to holding period restrictions that are pretty minor in the scheme of things.
Statistics: Posted by DaufuskieNate — Mon Feb 26, 2024 4:22 pm — Replies 255 — Views 26517