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I figured 6% for the TIPS ladder. Right now, the coupon rate for TIPS is around 2.4% and I assumed an inflation rate of 3.5%, which accounts for the assumed rate of 6%. Inflation was quite a bit lower in November and December, but I think a lot of that was due to the sharp drop in the price of oil. I don't see oil prices continuing to go down, so I assumed inflation would be back to the historical trend.

I used 4 year rates of return for the other components. These came out as follows:

PBDIX 3.8%
LSBRX 14.4%
PAAIX 10.3%

Based on my percentage calculation to each category, I came up with a 7.3% return. I realize that historical rates of return aren't necessarily a reliable indicator of future performance, but I had to use something to estimate the return from the portfolio. Whatever the actual return turns out to be, my assumption is that it will be at least 1 1/2 to 2% higher than a portfolio of cash and TIPS.



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