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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-m
anagement/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
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-m
anagement/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.
On 2009-06-29, Yadda <y...@n...net> wrote:
> 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
anoop <g...@g...com> writes:
> 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/TI
P.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.
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