This is not the question most of us buying 20-year TIPS are asking. This is framing it as a horse race between TIPS and stocks. We are not doing that; we are asking, "how can I meet my expected real liabilities in 20 years with the least uncertainty (i.e., with the lowest risk)?" There is only one answer: 20-year TIPS.
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So moving on to the potentially actionable part of this conversation.... How do we assess the likelihood that holding VT for 20 years will "at least" return one's inflation adjusted principal.... Or perhaps instead of using zero as our minimum threshold for inflation adjusted return, let's set it at the current 20 year TIPS YTM of say 2% to stay in focus with the question of this thread....
Just because we understand how to meet this goal doesn't mean we don't think stocks probably have a higher expected return than TIPS, even though we can't quantify it. That's why most of us probably also own stocks. Once we have the foundation in place, we can sleep well at night regardless of how our risk portfolio performs (if we can't, then our allocation to stocks is too high). Note that none of the choices in the OP was, "sell all my stocks to buy TIPS."
I understand the point of view that stocks probably will have a higher 20-year return than TIPS, so there's no need to include 20-year TIPS in the portfolio. That reflects a different approach to the question, and a different view of risk: either stocks are not risky in the long run, or the risk is acceptable. I disagree with the former, and the latter is not true for me.
It seems to me that this emphasis on historical 20-year US stock returns indicates a belief that the historical results provide enough data to conclude that stocks have almost no risk for a 20-year holding period. Some of us have tried to explain why we don't think this is a valid conclusion, but clearly we're not going to change the minds of those who do. And no matter how many charts of historical results are shown, those of us who have concluded that we don't have enough historical data to draw valid statistical conclusions from it are unlikely to change our minds.
Statistics: Posted by Kevin M — Sat Feb 03, 2024 11:20 am — Replies 2800 — Views 407471