401K offering VAIPX soon. Good news or yawn?

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HenryPorter
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Joined: Sat Dec 05, 2009 1:09 am

401K offering VAIPX soon. Good news or yawn?

Post by HenryPorter »

Later this summer, my company will be offering VAIPX as a fund choice. Given that bond funds may get slammed in the years to come if interest rates climb, is buying into an inflation-bond fund maybe not so significant until we see some higher rates? Can say the same will apply most any plain vanilla bond fund, but I love the low expense of VAIPX for starters. I have about a 30 year horizon. How would VAIPX compare to TIP? Is there any advantage one over another? I think the only thing that holds me back from TIP is the trading fee to purchase or sell shares in my IRA account. Other than that, VAIPX performs nearly the same according to historic prices. TIP actually seems to yielded about 51% net gain since December 2005 vs. VAIPX yielding 44% for the same time frame (data based on Yahoo Finance historic adjusted close of prices).
patrick
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Re: 401K offering VAIPX soon. Good news or yawn?

Post by patrick »

If you are going to hold for 30 years, interest rate increases would be a good thing for you. The initial capital loss would be more than outweighed by higher interest payments later.
Topic Author
HenryPorter
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Joined: Sat Dec 05, 2009 1:09 am

Re: 401K offering VAIPX soon. Good news or yawn?

Post by HenryPorter »

patrick wrote:If you are going to hold for 30 years, interest rate increases would be a good thing for you. The initial capital loss would be more than outweighed by higher interest payments later.
In a way, it would be comparable to an annuity in terms of the cash flow part? Tangentially, I have been imprinted in my mind for some reason to use 8% as a interest rate to back up the truck with bond purchases. Maybe interest rates can not achieve much past a regressed 8% long-term annual yield so that is why I remember that number? All I can tell you is that if I was more knowledgeable back in the 1980's, I'd probably spent my money on buying high yield long-term certificates of deposit and all that rot, but kids don't think about compounding like that.
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dodecahedron
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Re: 401K offering VAIPX soon. Good news or yawn?

Post by dodecahedron »

HenryPorter wrote:All I can tell you is that if I was more knowledgeable back in the 1980's, I'd probably spent my money on buying high yield long-term certificates of deposit and all that rot, but kids don't think about compounding like that.
Well, with benefit of hindsight, that is easy to say. But having been there in the 1980s, I can tell you that high yield long-term CDs did not look so hot back then, with memories of double-digit rampaging inflation spiraling higher and higher still fresh in our minds. Those high-yield long-term CDs still seemed likely to result in negative real after-tax returns (especially in the early 1980s when the top marginal rate on investment income was 70% and inflation was at historic highs.)

Anybody else remember how exciting All Savers' certificates were? They were tax-free one-year CDs that paid 70% of the one-year T-bill rate. http://www.investopedia.com/terms/a/all ... ficate.asp

http://www.csmonitor.com/1981/0821/082148.html
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