How about "Duration matched pair of bonds" as a new entry for the drop-down box labeled "Which TIPS to use to fund a year without a maturing TIPS:"?
It might work something like this.
The duration for the Jan 2034 is 8.5.
The duration for the Feb 2040 is 13.2.
There are about six years between the two bracket years, so the expected duration should increase about (13.2-8.5)/6 = 0.78 per rung (assuming the target gap-year bond is the January issue). (The math would be slightly different if the user decides to use the Jul 2034 as the bracket year, or if July issues are the target bonds for the gap rungs.)
Continuing with the Jan 2034 bracket year case, with January targets, as an example:
The goal is to find the mix of 2034s and 2040s for each gap rung that has an average duration the closest to the following:
2035, Dur = 9.28
2036, Dur = 10.07
2037, Dur = 10.85
2038, Dur = 11.63
2039, Dur = 12.42
The tool would report the number of 2034 and 2040 bonds needed to fill each individual rung, as well as the total number of 2034 and 2040 bonds to buy. Does this make sense?
Note: One can already do this iteratively with the manual ladder builder, but automating the process would make it much easier for new investors to figure out.
One should emphasize the importance of keeping a record of how many of each of the two bonds were purchased for each rung, so the user remembers how many to sell when the time comes to swap the bracket year bonds for newly issued bonds maturing in a particular gap year. (At that time, the user sells the specified mix of bracket years and uses the proceeds to buy the gap year.)
It might work something like this.
The duration for the Jan 2034 is 8.5.
The duration for the Feb 2040 is 13.2.
There are about six years between the two bracket years, so the expected duration should increase about (13.2-8.5)/6 = 0.78 per rung (assuming the target gap-year bond is the January issue). (The math would be slightly different if the user decides to use the Jul 2034 as the bracket year, or if July issues are the target bonds for the gap rungs.)
Continuing with the Jan 2034 bracket year case, with January targets, as an example:
The goal is to find the mix of 2034s and 2040s for each gap rung that has an average duration the closest to the following:
2035, Dur = 9.28
2036, Dur = 10.07
2037, Dur = 10.85
2038, Dur = 11.63
2039, Dur = 12.42
The tool would report the number of 2034 and 2040 bonds needed to fill each individual rung, as well as the total number of 2034 and 2040 bonds to buy. Does this make sense?
Note: One can already do this iteratively with the manual ladder builder, but automating the process would make it much easier for new investors to figure out.
One should emphasize the importance of keeping a record of how many of each of the two bonds were purchased for each rung, so the user remembers how many to sell when the time comes to swap the bracket year bonds for newly issued bonds maturing in a particular gap year. (At that time, the user sells the specified mix of bracket years and uses the proceeds to buy the gap year.)
Statistics: Posted by MtnBiker — Fri Oct 11, 2024 12:06 am