dyangu wrote:Nope. I would buy the full $10k/year in I Bonds before considering short term TIPS.
I guess you haven't been watching real yields in a couple years.DaveS wrote:Well It's nice to know you wont do worse than inflation.
nisiprius wrote: But then I realized that I also have a small-medium holding of Vanguard Short-Term Bond Index, that I use because, well, I think I have enough "true" cash-like emergency funds that I decided, yeah, I could take a little risk with some of it. And I have to think about this, but on the whole I'm thinking that maybe the Short-Term TIPS Index Fund would be no worse, and I sort of like the idea of keeping a reasonably high percentage of my portfolio indexed to inflation, and I might just shift it to the short-term TIPS fund, for no particular reason.
An intriguing aspect of the .25% purchase fee is its effect on the ETF class. By charging the other classes extra you effectively subsidize the ETF class. That's an interesting way to get the ETF volume up quickly so that the necessary NAV/price arbitrage mechanism can work.
BornInCA wrote:Would this be a good addition for savers who want to build and maintain a diversified short term fixed income portfolio in a taxable account? I'm just listing the asset class and their Vanguard funds and ETFs for reference.
Short-Term Government (traditional) bonds: Vanguard Short Term Treasury (vfisx/vfirx) OR Vanguard Short Term Bond Index (vbisx/vbirx/bsv) OR Vanguard Short-Term Government Bond ETF (VGSH)
Short-Term Municipal bonds: Vanguard Short-Term Tax-Exempt (vwstx/vwsux) OR Vanguard Limited-Term Tax-Exempt (VMLTX/VMLUX)
Short-Term Inflation Protected Bonds: Vanguard Short-Term Inflation Protected Securities Index (VTIPX/VTAPX/VTIP)
Since it's a taxable account, I excluded short-term Corporate bonds from this post. Depending on one's tax situation, I would guess that it would consist of at least one of the top two asset classes. I would only need to pick one fund for each asset class above.
Can it be said that "Short-Term Inflation Protected Bonds" is the third asset class? I know it's different from short-term municipal bonds but how does it compare/contrast to short-term government bonds? How much correlation can we expect from VTAPX against VFIRX?
For example, let's say a saver in the middle federal income tax bracket has his short term fixed income portfolio structured this way:
80% VBIRX and 20% VWSTX. VWSTX is added more for the diversification benefit than the tax benefit.
What if he were to modify his short term fixed income porfolio to include Short Term TIPS to this fund allocation:
60% VBIRX, 20% VWSTX, and 20% VTIP
Would VTIP provide an added diversification benefit? why or why not? How so or how not?
Phineas J. Whoopee wrote:
I'm sorry, but didn't you just ask that question word for word?
And didn't someone answer?
I'm not sure I understand. Is everything OK? If you want more attention paid to your question you could start a new thread and ask it there.
Phineas J. Whoopee wrote:With relatively high transaction costs, the arbitrage equation would change slightly for the Authorized Participants. That means there will be a drag on providing new ETF shares for which there is demand, and for destroying ETF shares for which there is insufficient demand.
I believe, although if I'm wrong I'm sure you, #Cruncher, or some other helpful poster ( :happy ) will tell me, I believe the net effect will be increased spread, and increased tracking error, for the ETF shares.
If the purchase fee of 0.25% legitimately represents transaction costs, there would be no way ETF shareholders could escape something similar to it.
One does not reduce inflation protection with short term TIPS. TIPS of all maturities provide almost exactly the same inflation protection. The only significant way return can vary between TIPS of different maturities is if their real yields differ.Jack wrote:Either long or short TIPS will protect against unexpected inflation risk, but long TIPS work better because they provide longer protection. If unexpected inflation shows up, then short TIPS will become more expensive for the fund to roll over while long TIPS do not need to roll over as often. If you try to reduce duration risk by shortening TIPS, you have the side effect of also reducing your long term inflation protection...
Phineas J. Whoopee wrote:If the purchase fee of 0.25% legitimately represents transaction costs, there would be no way ETF shareholders could escape something similar to it.
Doc wrote:Regarding the .25% purchase fee:Phineas J. Whoopee wrote:If the purchase fee of 0.25% legitimately represents transaction costs, there would be no way ETF shareholders could escape something similar to it.
But it doesn't represent the legitimate transaction cost as ftobin indicated. For example the bid ask spread on the '17 from the WSJ is only 2/32 with the market closed. Last week I got a quote from Schwab on the same issue and the bid/asked was only 117.683/118.08 for a small lot. The .25% is just Vg's "standard" purchase fee. In my opinion it is just Vg's way to juice the initial returns on the ETF class to get the trading volume up quickly. The fee will go away when the fund gets bigger and will not be an issue. And in the meantime it helps get the ETF volume up because the arbitragers are getting subsidized.
In the long run different expenses for different share classes can only be justified if the difference truly represents the difference in costs to the fund. In this case it does not but it is also not the "long run".
There are few reasons for any investor to use a short Treasury fund instead of their own ladder. These reasons include small portfolio, short term investment and convenience. Transaction cost should not be a major consideration for moderate sized portfolios. There is however one additional reason for Vg clients to use the new fund - you don't need to deal with the bond desk at VBS.
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