about TIPS

For the TIPS rates at
formatting link
,does that include the fixed and CPI portionsof the interest rates? There's an auction for 10-year TIPS in a few days
formatting link
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
Reply to
anoop
on 6/28/09 3:33 PM anoop said the following:
formatting link
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.
Reply to
Yadda
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
Reply to
Igor Chudov
anoop writes:
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).
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%
Depends on a lot of factors. Nobody here can answer this question fully without more information.
These things are highly liquid and traded pretty continuously. The auction shouldn't have much immediate effect.
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.
Reply to
BreadWithSpam

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.