Inflated Anxiety

Sanjib Saha, 1:46 pm ET

MY EMPLOYER’S 401(K) plan is great, with a generous matching contribution and lots of investment options. Those looking for even more choice can open a brokerage subaccount within the 401(k), allowing them to buy thousands of securities.

I’ve stayed away from the brokerage option, in part because I feared the extra choice might affect my investment discipline. But my growing anxiety about inflation forced me to reconsider.

I want a predictable cash reserve to cover my expenses for the next 10 years, independent of how the financial markets perform. That’s why a large portion of my 401(k) is invested in Vanguard Short-Term Bond Index Fund (symbol: VBIPX). Problem is, while the fund should hold its own in a broad market decline, it does little to preserve my money’s purchasing power.

Everywhere I look, I’ve been noticing price creep. Initially, I took it as temporary phenomenon, the result of a post-lockdown spending surge. But the inflation spikes of recent months have spooked me. My anxiety kept rising despite the Federal Reserve’s insistence that this was only temporary. I’ve always felt that even the Fed—the expert of experts—has a hard time predicting and controlling inflation.

To tame my anxiety, I opened a brokerage subaccount in my 401(k). The process was simple and quick. In a few days, I was able to raise cash by selling a large portion of my Vanguard Short-Term Bond Index Fund. I used the proceeds to invest in inflation-indexed Treasury bonds through another low-cost Vanguard fund (VTIP).

Was it a good move? My rational self is half-convinced. But my emotional self couldn’t be happier. Sometimes it feels good to have a little insurance.

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11 months ago

I have no inflation protection in my portfolio and I can’t shake the belief that strong inflation will be around for two or more years.

Not surprisingly, I’m confused about VTIP.

How can the YTD be 2.75% but the SEC yield is -2.69%?

M Plate
M Plate
11 months ago

I added a TIPS fund several months ago. Its comforting to see ever larger “dividends” each month. The way Washington is spending I don’t see inflation going away soon. Eventually they’ll be forced to become financially responsible again, then Our TIPS will have a meager return.

Purple Rain
Purple Rain
11 months ago

Vanguard Target Date Fund 2015 has 15% allotted to the mutual fund equivalent of VTIP. Vanguard Target 2020 has 10% in short term TIPS. I add an additional stock index to the target date fund skew the allocation to my liking.

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