about TIPS

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date about TIPS anoop 06-28-2009  Re: about TIPS Yadda 06-28-2009  Re: about TIPS Igor Chudov 06-30-2009  Re: about TIPS BreadWithSpam 07-12-2009
Posted by anoop on June 28, 2009, 4:33 pm For the TIPS rates at http://bloomberg.com/markets/rates/, does that include the fixed and CPI portions of the interest rates? There's an auction for 10-year TIPS in a few days http://www.treas.gov/offices/domestic-finance/debt-management/auctions/auctions.pdf. So I was wondering if I should buy some for the portion of my portfolio that I plan to hold in fixed income investments for a long period, especially given that my money is earning < 1% at this time. Would there be any reason that I should not go out and purchase these for, say 20% of my portfolio? Should I be waiting for a 20-year auction? Should I be trying to ladder these with securities of different maturity? Anoop Posted by Yadda on June 28, 2009, 11:10 pm on 6/28/09 3:33 PM anoop said the following: > For the TIPS rates at > http://bloomberg.com/markets/rates/, > does that include the fixed and CPI portions > of the interest rates? > > There's an auction for 10-year TIPS in a few days > http://www.treas.gov/offices/domestic-finance/debt-management/auctions/auctions.pdf. > > So I was wondering if I should buy some for > the portion of my portfolio that I plan to hold in > fixed income investments for a long period, > especially given that my money is earning < 1% > at this time. > > Would there be any reason that I should not > go out and purchase these for, say 20% of my portfolio? > Should I be waiting for a 20-year auction? > Should I be trying to ladder these with securities > of different maturity? > > Anoop > Only invest in TIPS if you want to hedge inflation. It is a hedge to protect your nest egg. I put a portion of my non-401K nest egg into TIPS in late 2008. Given the outlook for the next ten years of slow/no growth, bonds in general might be a good play. Posted by Igor Chudov on June 30, 2009, 2:04 pm > Only invest in TIPS if you want to hedge inflation. It is a hedge to > protect your nest egg. I put a portion of my non-401K nest egg into > TIPS in late 2008. Given the outlook for the next ten years of slow/no > growth, bonds in general might be a good play. Yadda, could you explain if you have a minute, what is that outlook that you refer to. For example, why would I expect to make more money from bonds, as opposed to other assets. Thank you. i Posted by on July 12, 2009, 7:00 pm > For the TIPS rates at > http://bloomberg.com/markets/rates/, > does that include the fixed and CPI portions > of the interest rates? That's the "real" yield on them. It does not include the "CPI portions" because there the CPI portion comes in the form of an adjustment to face value, not an adjustment to the yield. It's a little bit like amortizing mortgage bonds - they carry an "original face", a "current factor" and a nominal yield. When mortgage bonds amortize (and prepay), the original face doesn't change, but the current face value does - and the factor gets reduced. With TIPs, the factor gets increased -- or reduced if there is deflation (though at maturity, it'll pay par even if the factor is less than one at that point). > So I was wondering if I should buy some for > the portion of my portfolio that I plan to hold in > fixed income investments for a long period, I like them, but only for a portion of the fixed income and only in a tax-deferred (or tax free) account. The iShares TIP ETF is by far the easiest way to get TIPS exposure. Expense ratio is 0.20% <http://us.ishares.com/product_info/fund/overview/TIP.htm> > Would there be any reason that I should not > go out and purchase these for, say 20% of my portfolio? Depends on a lot of factors. Nobody here can answer this question fully without more information. > Should I be waiting for a 20-year auction? These things are highly liquid and traded pretty continuously. The auction shouldn't have much immediate effect. > Should I be trying to ladder these with securities > of different maturity? There are some strategies one can use to try to goose one's returns with them, but I'd doubt the effort and costs are worth it for anyone short of a substantial institutional investor. Larry Swedroe talks about some of them in his excellent book "The Only Guide to Alternative Investments You'll Ever Need". He's got a chapter devoted to TIPS and I highly recommend reading that chapter (if not the entire book) before considering investing in them. And after you read it, you'll probably still want to buy them. If you're just looking to diversify maturities out and maintain something akin to a mid-range average maturity, really, it's easiest just to buy the index and be done. That's basically all it's doing. The other easy way to invest in TIPS is Vanguard's TIPS fund, VIPSX, however unless you buy it directly from Vanguard, you may pay your brokerage's non-NTF fund transaction fees. -- Plain Bread alone for e-mail, thanks. The rest gets trashed. No HTML in E-Mail! -- http://www.expita.com/nomime.html Are you posting responses that are easy for others to follow? http://www.greenend.org.uk/rjk/2000/06/14/quoting Similar Threads Posted TIPS duration January 3, 2009, 4:38 pm Any tips on buying CD's? September 14, 2009, 10:38 am Re: Tips to Succeed in Stock Market June 21, 2008, 11:32 am Re: Tips to Succeed in Stock Market June 21, 2008, 3:28 pm Re: Tips to Succeed in Stock Market June 21, 2008, 11:09 pm Re: Tips to Succeed in Stock Market June 22, 2008, 11:23 am