Case Study: Capital Preservation

Case Summary

George is nearing retirement and doesn’t want a downturn in the market to force him into working for another couple of years.  On the other hand, George is worried about inflation and its impact on his standard of living while retired.


Most investors approaching retirement move part of their portfolio into fixed income to preserve capital and supplement retirement income.  Part of the portfolio remains in equities to protect against inflation.

Investors trying to balance capital preservation with inflation protection have several ETF choices. Adding a substantial, diversified fixed income component to the portfolio is easy and cost efficient with an Aggregate Fixed Income ETF. Inflation protected securities or TIPS ETFs are available for both US and International securities. Commodities ETFs are yet another way to hedge against inflation.

Portfolio Recommendations

George should look at the most popular aggregate fixed income ETF which is the Vanguard Total Bond Market ETF (BND).  The $1.6 billion fund has an expense ratio of 0.11% and tracks an index that measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States.

For a domestic TIPS ETF, George should check out the $7 billion iShares Barclays Capital TIPS Bond Fund (TIP). For an international TIPS, George should look at State Street’s SPDR DB International Government Inflation-Protected Bond ETF (WIP).