Change of TIPS fund in Vanguard Funds of Funds

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Change of TIPS fund in Vanguard Funds of Funds

Postby convert949 » Wed Feb 06, 2013 9:03 pm

I just read an article in M* that indicated that Vanguard will be updating their Target Retirement funds (among others) by adding a new foreign bond fund and by switching the intermediate term TIP's fund VIPSX to the short term TIP's Fund VTIPX. It has often been a common recommendation on this forum to refer to these funds as good examples.

There is an additional -0.5% of negative yield (-1% for VIPSX vs. -1.5% for VTIPX) for the short term fund but that seems like a small price to pay for 6 years less duration (2.5 vs. 8.5).

Are many on the forum considering switching to the short term VTIPX as well :?:

Regards to all,

Bob
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby LadyGeek » Wed Feb 06, 2013 9:43 pm

I was wondering about that myself, since it's relatively new.

Info: Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares (VTIPX) (Fund Inception Date 10/16/2012)

Here's the announcement: Help diversify your portfolio with upcoming Vanguard bond fund

(The international bond aspects are discussed in two other threads: Finally arrived: The Vanguard Total International Bond Fund and Target Retirement Funds to add international bonds)
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby JD » Wed Feb 06, 2013 11:20 pm

convert949 wrote:I just read an article in M* that indicated that Vanguard will be updating their Target Retirement funds (among others) by adding a new foreign bond fund and by switching the intermediate term TIP's fund VIPSX to the short term TIP's Fund VTIPX. It has often been a common recommendation on this forum to refer to these funds as good examples.

There is an additional -0.5% of negative yield (-1% for VIPSX vs. -1.5% for VTIPX) for the short term fund but that seems like a small price to pay for 6 years less duration (2.5 vs. 8.5).

Are many on the forum considering switching to the short term VTIPX as well :?:

Regards to all,

Bob


Thinking about shifting some of our holdings in TIPs to this new fund but no decision has been reached yet! I believe there is an up front fee of 25 basis on buying? so that may make it a bit more expensive.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby abuss368 » Wed Feb 06, 2013 11:44 pm

This is an interesting change. I am really interested in others thoughts here.

First, I am an indexer and would prefer 100% index funds in my portfolio. I realize the Intermediate TIPS fund is almost an index fund but at the end of the day it still has manager risk. I would like to see Vanguard turn that fund into an index offering, but with the recent Target funds change, it appears they are making more of a push with the short term offering.

Are folks planning to switch to the short term fund over the intermediate term offering? Less income but additional inflation protection. How important is this over a regular short term bond fund?

I do like the elimination of the Prime Money Market fund. I have always thought cash belongs in a bank savings account. I would rather be invested in bonds for the fixed income allocation.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby Phineas J. Whoopee » Thu Feb 07, 2013 5:38 pm

abuss368 wrote:... Are folks planning to switch to the short term fund over the intermediate term offering? Less income but additional inflation protection. How important is this over a regular short term bond fund? ...

Hi abuss,

The short-term TIPS fund has no more inflation protection than the longer-term fund. All TIPS receive the same inflation adjustments.

It is true that the short-term fund should have a closer correlation to present inflation, but that's due to its reduction in (real) interest-rate risk. It has a correspondingly lower expected long-term return.

That isn't to say you or anyone else should or should not make the switch.

PJW
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby ICE » Thu Feb 07, 2013 5:51 pm

Read an article that stated that TIPS are a terrible investment right now, but if you want them in your portfolio go with the shortest maturities, less interest rate risk.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby Karl » Thu Feb 07, 2013 6:28 pm

JD wrote:Thinking about shifting some of our holdings in TIPs to this new fund but no decision has been reached yet! I believe there is an up front fee of 25 basis on buying? so that may make it a bit more expensive.


I'm hoping that 0.25% purchase fee goes away. Vanguard tends to drop such fees as funds grow larger and adding it to their funds of funds should certainly increase its size tremendously. Let's hope that's enough to beat away that annoying purchase fee. 25 bps looks like a lot when you consider how little bonds yield today.

Though if they got rid of that fee, I'd then feel pressured to shift some money into it, but selling Inflation Protected Securities would produce a sizable capital gain to be taxed. Yeah, I know, I'm whining about taxation on a profit, which is a pretty good problem to have since making money is sort of the point of investing.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby abuss368 » Thu Feb 07, 2013 9:50 pm

Karl wrote:I'm hoping that 0.25% purchase fee goes away. Vanguard tends to drop such fees as funds grow larger and adding it to their funds of funds should certainly increase its size tremendously. Let's hope that's enough to beat away that annoying purchase fee. 25 bps looks like a lot when you consider how little bonds yield today.

Though if they got rid of that fee, I'd then feel pressured to shift some money into it, but selling Inflation Protected Securities would produce a sizable capital gain to be taxed. Yeah, I know, I'm whining about taxation on a profit, which is a pretty good problem to have since making money is sort of the point of investing.


So do you hold an inflation bond fund in a taxable account?
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby JD » Thu Feb 07, 2013 11:21 pm

abuss368 wrote:
Karl wrote:I'm hoping that 0.25% purchase fee goes away. Vanguard tends to drop such fees as funds grow larger and adding it to their funds of funds should certainly increase its size tremendously. Let's hope that's enough to beat away that annoying purchase fee. 25 bps looks like a lot when you consider how little bonds yield today.

Though if they got rid of that fee, I'd then feel pressured to shift some money into it, but selling Inflation Protected Securities would produce a sizable capital gain to be taxed. Yeah, I know, I'm whining about taxation on a profit, which is a pretty good problem to have since making money is sort of the point of investing.


So do you hold an inflation bond fund in a taxable account?


I do hold 2 bond funds, one of them is inflation bond fund, in taxable account.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby dbr » Fri Feb 08, 2013 11:19 am

abuss368 wrote:So do you hold an inflation bond fund in a taxable account?


There is nothing wrong with this if the outcome is no worse than any other alternatives that meet the investors objectives.

It is not true that TIPS are the least tax efficient investment. Far from it.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby billyt » Fri Feb 08, 2013 12:55 pm

I don't know about the 0.25% purchase fee. That is paid into the fund. If I establish a position in the fund, then I am collecting that extra 0.25% from other buyers until it is discontinued.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby Karl » Fri Feb 08, 2013 1:43 pm

billyt wrote:I don't know about the 0.25% purchase fee. That is paid into the fund. If I establish a position in the fund, then I am collecting that extra 0.25% from other buyers until it is discontinued.


Yes, you just hope they don't discontinue it the day after you buy.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby Karl » Fri Feb 08, 2013 1:48 pm

abuss368 wrote:So do you hold an inflation bond fund in a taxable account?


Yes. It does avoid Wisconsin income tax and my state LOVES to tax. My income was too low to justify a muni fund, so a TIPS fund made sense.

I may or may not sell as I've already significantly lowered by exposure to interest rate movements when 73% of my bond holdings are ST.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby convert949 » Fri Feb 08, 2013 5:56 pm

billyt wrote:I don't know about the 0.25% purchase fee. That is paid into the fund. If I establish a position in the fund, then I am collecting that extra 0.25% from other buyers until it is discontinued.

Just thought of something else... If the 0.25 % goes into the fund, is the SEC yield actually -1.75% :shock:

Regards to all,

Bob
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby nlof » Tue Feb 12, 2013 3:36 pm

The corresponding Vanguard Short term TIPS ETF (VTIP) has no such load fees. I've been using it in order to avoid the 0.25% purchase fee.
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby CyberBob » Tue Feb 12, 2013 6:04 pm

convert949 wrote:...-1% for VIPSX vs. -1.5% for VTIPX...

VTIPX is actually showing a yield today of -2.42% :shock:

Bob
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby convert949 » Tue Feb 12, 2013 6:13 pm

Cyberbob,

Just saw that too... Wonder why the dramatic change :?:

Regards to all,

Bob
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Re: Change of TIPS fund in Vanguard Funds of Funds

Postby #Cruncher » Tue Feb 12, 2013 8:36 pm

CyberBob wrote:
convert949 wrote:...-1% for VIPSX vs. -1.5% for VTIPX...
VTIPX is actually showing a yield today of -2.42% :shock:
convert949 wrote:Just saw that too... Wonder why the dramatic change :?:
A list of this month's 30-day SEC Yields for Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares (VTIPX) shows a big drop on Feb 8th. A list for the old Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) shows just a small drop. * Perhaps on the 8th Vanguard shifted from one 30 day period to another. Or perhaps its reporting methodology on the new fund is still a "work in progress".
Code: Select all
              -----  VIPSX -----       ----- VTIPX -----
   Date       Price    SEC Yield       Price   SEC Yield
----------    ------   ---------       ------  ---------
02/01/2013    $14.37     –1.10%        $25.17    -1.60%
02/04/2013    $14.44     –1.10%        $28.18    -1.60%
02/05/2013    $14.40     –1.10%        $25.17    -1.60%
02/06/2013    $14.43     –1.10%        $25.17    -1.60%
02/07/2013    $14.41     –1.10%        $25.17    -1.60%
02/08/2013    $14.40     –1.12%        $25.16    -2.42%
02/11/2013    $14.39     –1.12%        $25.14    -2.42%
02/12/2013    $14.39     –1.12%        $25.15    -2.42%
The -2.42% figure -- not the 1.60% -- appears reasonable. It compares to the 2/11/2013 "Average Real Yield to Maturity" of -2.12% for the iShares STIP 0-5 Year TIPS Bond ETF that tracks the same index. It also compares with the 2/8/2013 -2.01% average real yield I calculated for all TIPS maturing within 5 years. ** (See my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.)

* To generate these historical lists click the link, Search for more historical price information, on the Price & Performance tab.
** Vanguard's SEC Yield should equal the average real yield of its holdings less its expense ratio.
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