Personal Finance and Investing

Last edited Wed Nov 9, 2022, 06:15 PM - Edit history (4)

and what the expected rate of return is at different assumed inflation rates. It took me many many hours to understand the thing to get to the point where I'm at now. That's all I'm asking for - a tool or a methodology that will tell me what the rate of return will be at different inflation rates.

I'm not trying to find and exploit some "inefficiency" in the fixed income market. Nor am I trying to outsmart the TIPs market or other TIPs investors. I'm more at the dum-dee-dum stage where I'm simply trying to understand what it is I'm about to buy.

After some investing mistakes early in my career, such as buying limited oil and real estate partnerships from smooth-talking glad-handing white-shoe brokers, I've made it a point to understand what I'm buying. If I don't understand it, I don't buy it, no matter what the "market" or other people think about it. That's just life in the big city for me. Ain't gonna change any time soon.

I think we may be near the top of the interest rate cycle. I know that Powell has some more rate rises in store. But if there is a recession in 2023, rates will go down fast.

Anyway, I have chosen to lock in for about 5-7 years a rate of return of 5.9% -- if inflation averages 4% over the next 5.4 years, which I think it will be -- or 3.9% if inflation averages 2%. I doubt that it will average that low. At the higher end, If inflation averaged 6% it would return 8.0%.

(These rate-of-return estimates are approximate, I haven't fixed my spreadsheet to allow for investments in between semiannual payment dates, but I can "bracket" them within a narrow range. The accrued interest part isn't the problem with fixing the analysis.)

All investments are market investments where I'm choosing from many many options which one I think / guess / estimate is best for me. And keeping a diversified portfolio. You've chosen T-bills, I'm choosing something that will lock in today's return for longer. I've always been an "intermediate-term" guy when buying fixed rate stuff, and I've usually been glad that I picked intermediate-term over shorter-term investments. But then I've lived in a secular falling interest rate environment for almost my entire investing life. But, at least for a few more months, we're going to see somewhat higher interest rates - a good argument for your approach.

The accrued interest thing doesn't bother me in the least and is not a problem in my analysis. Its just part of the initial price I have to pay.

Thanks again, much appreciated