All About TIPS: Real Returns and Inflated Expectations


Now that inflation is raging at highs not seen in the last 40 years, it’s no wonder that investments which guard against inflation have been experiencing a massive influx of money. With billions of dollars of new inflows every month, Treasury Inflation-Protected Securities (commonly referred to as TIPS) have quickly become some of the hottest portfolio options for nervous investors. And since questions about TIPS on message boards and in my inbox are apparently directly proportional to those cash flows, this feels like a good time to dig into the topic and separate the measurable truth from what passes as common knowledge.

How do TIPS work? How often have they succeeded in generating a real return above inflation? And are they really better than normal bonds without the inflation protection? Stick with me, and I wager you’ll learn a few things that may surprise you.

Financial Roadblocks Require Creative Solutions


Over the past few weeks I was hit with a double whammy of bad news. First, the company that manages my online store stopped paying all creators for an extended period of time. Then on the morning I expected to see my most recent long-overdue payment, I instead learned that the same company also paused all digital download sales without warning. So pretty much overnight, the Portfolio Charts store that I’ve spent years thinking about and months getting up and running went up in smoke.

How has your week been? Because mine has been something else.

How to Replace Income in Retirement

Retirement, Beginner

I had the distinct pleasure of spending time with my wife’s family this week. Between catching up on life events and helping with a few household chores, my father-in-law (let’s call him John) took the opportunity to ask his financially-minded visitor a question directly pertinent to his own immediate goals.

“How can I use my investments to cover the bills in retirement?”

I knew that John is a CPA and a knowledgeable investor who has actively traded his family accounts for years. So as a well-educated student of retirement finance, I naturally jumped in to an explanation of safe withdrawal rates, retirement spending methods, and how portfolio theory can be used to tweak the numbers to safely spend a certain percentage of his portfolio every year without fear of running out of money over his expected lifetime. John listened intently and replied with a deceptively simple follow-up question:

How do you guarantee that level of investment income every year?

That’s a terrific question, and the simple answer is you don’t have to. But that’s the exact moment I recognized my own investing bubble. The internet these days contains more information than ever about every nuance of retirement finance, but the gap between the theory debated by eggheads and John’s completely rational income-driven paradigm is just as perfectly normal as it is surprisingly wide to bridge.

I was talking about systems theory, and he just wanted to directly replace income. Which makes perfect sense! And I imagine many of you may have the same question.

So rather than jumping into a painfully long series on every possible way to tweak the numbers, let’s start with the basics. If you’ve ever wanted to know how to safely move beyond depending on regular work income to pay the bills, this article is for you.

The Little Details Matter


One of the important lessons I learned early on as a young engineer is that it’s important to pay attention to the small things. Your assembly design may indeed be truly impressive, but if the seams between parts don’t properly align it will give the impression of poor craftsmanship. Is it sculpted perfectly for the hands? Nice! But if it’s made with flimsy materials it will still feel cheap. Details matter.

That trained fixation on the small things can also have its downsides. For example, where I spend hours experimenting with just the right layout for a spreadsheet, I also understand that when something complicated is done really well the end result can sometimes be so transparent that it occasionally goes unnoticed. From the well-executed finish of a part to the dew drops on a dandelion, just because something is beautiful doesn’t mean it’s obvious to everyone.

So after spending quite a bit of time working on several relatively small site features, I thought it might be helpful to bring them to everyone’s attention. They may be minor but they’re still useful!

Halfway to Nowhere: 2022 Mid-Year Portfolio Rankings


Now that June has come to an end, economists are busy tabulating various indicators as usual to close the quarter. And while the numbers are not yet final, early reports indicate that the US experienced its second consecutive quarter of negative growth. Those uninitiated in technical jargon may simply shrug their shoulders, look around, and give a hearty “no crap” to the suggestion that the economy is floundering. But it’s a fairly big deal in economic circles, as that meets the classic definition of the big R-word.

Welcome to the recession.

As stocks swoon, rates rise, inflation takes off, and recession takes hold, clearly it has been a challenging year for investors. So while economists are doing their thing looking at the big picture, I thought it would be educational to run my own numbers on investing choices more within our personal control.

Would you like to know how your favorite portfolio compared against all of the others in the first half of 2022? Let’s dive in and explore what it took to do relatively well in particularly tough investing timeframe.

Moving Forward One Step at a Time


I’m moving next week, and even though I still have a few days to go I’m already pretty spent. From the decision to find a new place to the painfully long search and ultimately to the final move, it consumes so much physical and mental energy that at some point you inevitably wonder if it’s really all worth it. As I think past the near-term pain and anxiety to the post-move future with more space, a nice view, and significantly lower rent, I know things will eventually work out and we’ll look back fondly on our good choice. But that still doesn’t diminish the reality that moving is hard.

In a moment of brief silence lost in a day full of errands, it struck me that I’ve felt this way before. And it wasn’t even in another physical move like the one I’m caught up in now. Now that I think about it, making a big financial decision can bring out a lot of the same emotions as changing the place you call home.

Proven Ways to Protect Your Portfolio From Inflation


Perhaps the single most impactful development in the financial world over the last several months is the rapid onset of high inflation. After a decade of particularly low inflation that even pushed negative in some countries, the ugly specter of quickly rising prices came roaring back late last year and has only gotten worse. As recently as March 2021, the annualized inflation in the US was at a historically typical 2.6%. But just one year later it skyrocketed all the way to 8.5%. That’s the highest it has been since 1981, and we can all feel its effects. Everything is just way more expensive today.

With consumer prices making news worldwide, it’s easy to feel helpless. Massive price tags on basic staples like food, gas, and rent have a way of humbling even the most efficient money manager and stressing household earners to the limit. And many investors with lots of money saved up no longer feel so confident either as both the stock and bond markets break under the weight of the new economic normal. It’s really tough out there!

While I don’t have a magic wand to make your grocery bill more affordable, I’m happy to help where I can. So let’s tackle the investing side. Not every asset and portfolio responds to inflation in the same way, and by learning more about how they operate we can find an asset allocation suitable to weather the current storm.

Unexpected Returns: Shannon’s Demon & the Rebalancing Bonus


One of the core assumptions baked into all of the Portfolio Charts calculations is the idea that the portfolios are rebalanced once a year back to their target percentages. While that simple process seems rather mundane on the surface, there’s actually a bit of mathematical magic going on that often gets lost in broader portfolio discussions. Yes, maintaining your target asset allocation is an important part of risk management, but it goes so much deeper than that. What if I told you that, like a lonely plant in a barren desert, in the right conditions rebalancing can cause profits to seemingly appear out of nowhere?

That peculiar phenomenon can clearly have a major impact on the way people think about diversification in their investments. So let’s unpack the mystery and talk about the elusive rebalancing bonus.

Safe Investing in a Time of Uncertainty


With everything going on in the world right now — protests, war, and floundering economic systems — it’s natural for even the most confident investors to have doubts. Our best plans are still based on certain rules and assumptions, and our own lived experience shades our perspective more than we probably realize. So when the world suddenly seems out of control and beyond our comfort zone, things we formerly took for granted feel a lot less stable. Like walking a lonely road with no idea what is over the horizon, it can be a unsettling experience.

Now I certainly don’t have the answers to every problem in the world. But when it comes to investing, the good news is that you actually don’t need those answers to protect yourself. The cool thing about studying financial history is that no matter how crazy things feel today it probably pales in comparison to events that your parents and grandparents dealt with. And by understanding how certain portfolios handled those stress tests, we can choose one more likely to stand the test of time.

So if you’re watching the news and worried about what it means to your important financial goals, here are a few tips for setting your portfolio up for success no matter what happens.