jsl11 wrote:I note that we have not had much discussion concerning Vanguard's new short term tips fund. It seems that this would be of interest to an investor who wants to have an allocation to a TIPS fund, but is concerned about the interest rate risk associated with Vanguard's original TIPS fund. Should a retiree consider changing from the original TIPS fund to the short term fund? Does the .25% purchase fee for the ST fund affect this decision? It seems that most investors in the original TIPS fund would have unrealized cap gains. However, if the holding is in an IRA account, this would not matter. What is your opinion on the such a fund exchange?
I think the decision whether to own a short-term TIPS fund vs the original intermediate term-TIPS is similiar to the decision whether to own a short-term traditional bond fund or intermediate-term traditional bond fund. It is not an easy decision because It reflects the usual bond risk/return tradoff.
For many years we have held a 50/50 combo of Total Bond Market and TIPS (VIPSX) which has been very satisfactory and we are reluctant to change. Nevertheless, I will probably replace our intermediate-term TIPS with the new shorter-term TIPS for these reasons:
* When Vanguard experts decided to exchange to the short-term TIPS in their fund-of-funds, I take notice. They know a lot more than I do about complex TIPS.
* The prospect for higher inflation suggest a shorter overall term in our bonds may be advisable.
* As an older retiree, preservation of our savings is much more important than taking unneeded risk in hopes of higher return.
* Our TIPS fund represent a substantial percentage of our portfolio.
* In my opinion, the 0.25% purchase fee is meaningless compared with the risk/return aspects of a bond fund held for several years. There is more than one road to Dublin.