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Allan Roth

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Looking for a Guaranteed 4% Portfolio Return? Try a TIPS Ladder.

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For retirees, here’s an innovative way to reap 30 years of guaranteed portfolio cash flow of 4.38%, or $43,800 annually, regardless of market performance: Invest about $1 million in a TIPS ladder.

“It’s the only way outside of Social Security to know where your annual inflation-adjusted cash flow is going to come from,” financial advisor Allan Roth, founder of Wealth Logic, tells ThinkAdvisor in an interview.

Roth came up with the idea to build a ladder of Treasury Inflation-Protected Securities, characterized by staggered bond maturity dates, and did so himself last year on the Fidelity platform.

Though it took only a week, the project was difficult and “mathematically complex,” he says. Nonetheless, the financial advisor has since been creating them for his ultra-high-net-worth clients.

He thinks the strategy should become widely used and is challenging the industry to create and maintain a vehicle for the structure, such as using an ETF.

Roth argues that the minimum amount to invest in a TIPS ladder for 30 years of returns should be about $100,000. In the interview, he stresses that the strategy be limited to only 20% to 25% of one’s fixed income portfolio.

A notable downside is that TIPS ladders are subject to “phantom income tax,” which Roth explains in the interview. However, this can be avoided by building the ladder in a tax-deferred account or even a tax-free Roth IRA.

In the interview, he contrasts a TIPS ladder with “insurance annuities that act as pensions,” which he describes as “playing Russian Roulette with inflation,” and with investing in stocks and individual bonds.

Before opening his own RIA in 2021, the 25-year veteran of the financial arena held high-level posts at large corporations, including Kaiser Permanente, Wellpoint (now Anthem) and Exxon.

ThinkAdvisor recently interviewed Roth, who was speaking by phone from his Colorado Springs, Colorado, base.

Working as a fee-only advisor, he favors the freedom of charging his super-wealthy clients by the hour and reveals what he calls a “bizarre” aspect of his business model.

He also likes the freedom of being able to write articles for a number of publications, such as Advisor Perspectives and Barron’s. It’s his way of helping “the common investor,” he says.

Here are highlights of our interview:

THINKADVISOR: What inspired you to build a TIPS ladder?

ALLAN ROTH: My editor at Advisor Perspectives, Bob Huebscher, suggested that, maybe, by buying 30-year TIPS, you could guarantee yourself a certain income.

So I thought, what if you built a TIPS ladder? We were at the Bogleheads Conference. On the flight back, I started to try to build a TIPS ladder on my laptop but realized how difficult it was.

I then started Googling and very quickly found an online calculator that a Boglehead had done.

How long did it take you to complete the ladder?

I had it built in a week.

I did it with $100,000 and then put another $900,000 in for a total of $1 million.

What makes a TIPS ladder so different, if not unique?

It’s the only way outside of Social Security to know where your annual inflation-adjusted cash flow is going to come from.

[My] average amount [from the ladder] is $43,800 annually.

What other benefits are there?

It’s also incredibly good from an emotional standpoint because the retiree knows beforehand how much both their Social Security and TIPS ladder are going to produce.

It gives them a kind of freedom to spend and enjoy their money.

How are TIPS’ economics right now?

Two years ago, TIPS were yielding -1.6%. Today, rates have gone way up; the yield is 1.97%.

How does a TIPS ladder compare with other types of investments?

Stocks have risk. With individual bonds, you can pay phenomenal amounts. And we don’t know what inflation is going to be. Inflation scares the heck out of me. So a TIPS ladder gets rid of one of the unknowns.

Further, we’ve never been in this position where the national debt is even close to what it is now.

“Buying insurance annuities that act as pensions is playing Russian Roulette with inflation,” you write. Please explain.

If you buy a fixed annuity with a [fixed] COLA, it actually increases, not decreases, [the effect of] inflation.

If you buy a TIPS ladder, you know exactly what you’re going to get in spending power.

If you buy a SPIA [single-premium immediate annuity], it solves for the longevity risk, which is important, but the inflation risk is far, far more dangerous. Last year we had high inflation.

Should every retiree’s portfolio include a TIPS ladder?

Probably not, because the average portfolio of retirees is maybe $100,000 or $120,000. So they don’t have enough money to build one. And certainly, you shouldn’t put all your eggs in that one basket.

Also, you want to have something that has a chance to grow much faster than inflation.

What minimum asset amount needs to be deployed for a TIPS ladder?

To build a 30-year TIPS ladder, probably close to $100,000. But you may not need a 30-year ladder; you may be [in your 70s or 80s] and could build one that matures, say, every five years.

You’ve talked about several of the pros. What are the cons of a 30-year TIPS ladder?

It’s difficult to build. It takes time. Mathematically, it’s pretty darned complex, because you have to look at bonds for 30 years and then figure out the cash flow for each of those and try to make it as stable as possible. It’s not an easy thing to do.

That’s why I’ve challenged the industry to come up with a solution. To my knowledge, they have not. [But] it takes a long time from concept, filing with the SEC and all that.

Any other cons?

When you buy in small amounts [as for a TIPS ladder], there are larger bid-ask spreads [which lower returns].

But the biggest con of all is that there’s a phantom income tax. For example, if you buy a zero-coupon Treasury bond, it doesn’t pay you interest until it matures, but you have to pay taxes on it.

Please elaborate.

A TIPS gives yield from two different perspectives. One, it gives you a real yield, and second, an adjustment of principal based on the CPI-U [Consumer Price Index for All Urban Consumers].

For example, if you bought a TIPS that had a 1% coupon and inflation was at 4%, then $1,000 would pay you $10 in actual cash and $40 in the appreciation of the TIPS. So you would have to pay income tax on $50.

Do any of your clients have a TIPS ladder?

Yes, and they love it. But sometimes when you mention the phantom income tax — which is not nearly as bad as people think because it causes the basis to adjust — people will say, “Oh, no. I don’t want that!”

However, you can build a TIPS ladder in a tax-deferred account or even a tax-free Roth [IRA] and not have to worry about [phantom tax].

Is it possible to make adjustments to the TIPS ladder?

Yes. When I built mine last year, there were seven years of TIPS [missing] between 2033 and 2039.

This year, when a 10-year TIPS came out, I was able to fill the missing 2033. So I bought another series of TIPS that [will] mature that year.

Next year, there’ll be another TIPS that matures in 10 years, which would be 2034. I’ll buy it, and that hole will be filled up.

To what extent is your whole investment portfolio diversified?

I’m as diversified as one can be: U.S. stock, international [etc.].

What did you have in bonds before you built the TIPS ladder?

Everything: a total bond fund, CDs, Vanguard TIPS Fund and some individual fixed Treasurys.

What happened to all those when you decided to do the TIPS ladder?

No. 1, I sold some to harvest losses and then bought the TIPS ladder. I didn’t shift my asset allocation.

I tell clients two things: Stick to your asset allocation no matter what, and a TIPS ladder should probably be no more than 20% or 25% of your fixed income portfolio.

This is not an all-your-eggs-in-one-basket [strategy].

So within fixed income, you should have other bonds too?

TIPS are newer and a smaller part of the Treasury market. Therefore, I wouldn’t put everything in this really good basket.

I’m a believer in diversification, not just in stocks but in the entire portfolio.

Do you own any individual equities?

Only as part of my fun portfolio. There’s a piece of my brain that needs to have a little bit of fun. I gamble that way. And I’m all for clients to take, like, 3%-5% of their portfolio to have a little fun with.

What vehicles do you mostly use to invest in stocks, then?

Mutual funds, ETFs [and] index funds.

You’re a financial advisor who writes for a number of magazines. You must like to write.


It’s a kind of therapy. I’ve upscaled my business to the very wealthy. Writing is my one thing to help the common investor, the common person.

You charge by the hour. Why do you choose that method of compensation?

It doesn’t eliminate conflicts of interest, but it minimizes them. I’m free to recommend any products I see anywhere or even conceive a product, like the TIPS ladder.

I would argue that there are many conflicts under the fee-[based] [assets under management] model, where I wouldn’t tell a client to pay off their mortgage or do a Roth IRA because that would hurt my income. And commission-only is selling certain products.

With either of those models, I have to see if my custodian will allow me to sell [a particular product].

But I’m free to recommend anything that I want — even when to pay down a client’s mortgage or buy a CD or build a TIPS ladder — without having any impact on my income. Oftentimes, CDs have incredibly good rates.

What’s perhaps most unusual about your practice?

My model is bizarre in that I try to do a one-time plan and get fired. I give the client rules going forward.

I would argue that my average client knows more about investing than a good 95% of investment advisors.

Pictured: Allan Roth


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