Bogleheads.org

See my reply to FactualFran. TIPS can obviously be bought at 1.00 as the inflation index ratio, or above or below 1.0. My finding, perhaps in need of correction, is that in the context of strong deflation buying a TIPS bond below 1.0 inflation index ratio will at maturity produce a return higher than actual inflation-deflation, but buying a TIPS bonds above 1.0 will at maturity produce a return lower than actual inflation-deflation. The index ratio does not determine how much above or below inflation the returns are, it's the real yield that tells you that. For example, there are two different TIPS that mature Jan 15, 2025. One has an index ratio of about 1.59 and the other has an index ratio of 1.26. Both have real YTM of about 1.4, there...

Let’s say I buy a secondary TIPs bond with an inflation index ratio of 0.9. If deflation is chronic and substantial through bond maturity, I would get an above-inflation return because of the added $100 per bond in the final payment. The higher final payment of $1000 (plus coupon) cannot be already packed into the real yield quote and price at the time of purchase, since that yield is real, meaning pre-inflation, meaning ignoring future inflation or deflation in an at-purchase real yield quotation. No one knows future inflation, so no one knows future bond payments for TIPS. Only with nominal discount bonds could the automatic final payment gain at final maturity payment be already expressed in the quoted yield at purchase. There's a diffe...

^ I think you could add at least the 62-64 year olds to that bloc and probably at least a few more ages, to include all who are eligible to collect or are close.

Carsson3 wrote: ↑Sat Apr 01, 2023 10:42 am It is emotionally hard to accept a nominal loss as a real return, as a 'good thing'.

I think it's easier for most humans to accept getting a 3% nominal return, while inflation is 6% or a getting 3% pay raise when inflation is 6% than it is to accept a nominal return of -1% with inflation at 0% or a pay cut of 1% with zero inflation.

But which of these is actually a worse outcome:
1. Holding a 10 year TIPS at 1.2% real, while there is 10 years of 1% per year deflation
2. Holding a 10 year nominal at 3.5% while there is 5.6% inflation

Each case projects an inflation rate that differs from expected (or at least "break-even") by about 3.3%.

Of course, in reality we can hold some of each and also hold stocks.

When they say 'X%' of scheduled benefits I assume that number is a swag. They would have to use an 'average' historical amount of how many people would demand their money at 62-70 and average number of people that would live Y number of years. I know the data is there but it's still a swag IMO. The old rule stands do not count on SS, as some say it's just insurance it might help if you outlive your retirement plan. Plan as if it will never happen. It's a better SWAG than zero. I don't plan on the stock market going to zero, and I don't plan on Social Security benefits going to zero. Yep, it's a reasonable projection, not any kind of guess. And, yes, you can count on SS, but it would be prudent to only count on maybe 75-80% of the promised ...

I'm not sure the OP's question is the right question to answer with respect to deflation risk. Deflation risk is best managed at the asset allocation level via the chosen mix of nominal treasuries and TIPS, rather than by trying to find the TIPS fund with the least seasoning. The status of a TIPS fund with respect to seasoning is changing all the time as new bonds are acquired, mature, or are sold, and as the TIPS held receive their inflation adjustments. Agree, I think even with individually selected TIPS the differences are unlikely to matter. Let's say you're looking at about 5 years, then for 2028 maturity there are a couple TIPS with about 1200 in inflation adjusted principle and there are a couple with 1400+ and 1800+, for this diffe...

If you had one of each of the available TIPS, the current inflation adjusted par value would be $63,900 and that could go as low as $51,000 under deflation, putting your maximum decline in par value at about 20%. Using the inflation adjusted principle listed here: https://www.wsj.com/market-data/bonds/tips Of course, the current market values would be different from par and you might want to base your estimate off of that. That would reduce the maximum deflation impact a bit, to about -17% with one of each TIPS. FWIW, I added a weighting factor, using portfolio data for the TIP ETF, this holds all TIPS with 1 year or more to maturity. After weighting them, I get a maximum decline in the inflation adjusted principle value, if held to maturi...

japan has had bad deflation for many years. so i don't think risk is purely theoretical It doesn't appear to have ever been significant or persistent enough that one TIPS vs. another would make much of a difference :?: , with the exception of 1975. https://www.macrotrends.net/countries/JPN/japan/inflation-rate-cpi For myself, this is something I pay zero attention to. I did spreadsheet calculations just out of idle curiosity. If there's deflation, it seems highly unlikely to be significant enough or persistent enough to matter WRT which TIPS to hold. I think that one difference vs. inflation is that the Fed is left pretty much on it's own when fighting inflation, while they are likely to be assisted by fiscal policy in any fight against de...

If you had one of each of the available TIPS, the current inflation adjusted par value would be $63,900 and that could go as low as $51,000 under deflation, putting your maximum decline in par value at about 20%. Using the inflation adjusted principle listed here: https://www.wsj.com/market-data/bonds/tips Of course, the current market values would be different from par and you might want to base your estimate off of that. That would reduce the maximum deflation impact a bit, to about -17% with one of each TIPS. FWIW, I added a weighting factor, using portfolio data for the TIP ETF, this holds all TIPS with 1 year or more to maturity. After weighting them, I get a maximum decline in the inflation adjusted principle value, if held to maturi...

You have not fully captured deflation risk in your discussion. The principal floor is only at maturity. Deflation can cause the TIPS principal value to fall below par along the path to maturity, and then the bond would be earning its coupon on the lower principal. Ah. I didn't know that. In theory, deflation could drop it below par, from which it would need to dig itself out of. But at maturity, you'd get par even if it hadn't managed to inflate it's value back up. I had been under the impression that it would never get adjusted below par. But thinking about it, it makes sense that it would as that represents the purchasing power of $1. I knew about that but didn't really think it through. Most funds don't hold to maturity. The full index ...

Curious but has anyone recently tried this (in the past week or so) to pay property taxes in Orange County CA or anywhere for that matter? I heard rumors that Chase is starting to code these transactions as "Cash advances" on one of the FB groups. Seems like it's just a rumor but wanted to see if anyone has very recently done this. I have a pretty big payment coming up and also just got the Chase Business Unlimited card so need to hit the bonus spend hahaha. Paying property taxes via Billpay would be an excellent option but I don't want to screw myself over either. Just paid Orange County CA property taxes full payment with Paypal bill using Chase IHG credit card to meet SUB. No fees. Payment was posted within 3 days. I wonder wh...

As I think I mentioned elsewhere in this post, the calculations themselves do seem like they would be simple in general nature, yes, although not easy or brief. I am far from sure if the layout below is adequate. Column numbers, with the leftmost column listing all the TIPS holdings by name: 1. All TIPs holdings in the fund as of a given date. 2. For each holding the current inflation adjusted par value. 3. For each holding the original par value, no inflation adjustment included. Presumably this would be near $1,000. 4 For each holding the inflation adjusted par value divided by the at issue par value, expressed as a percent. 5. For each holding a weighting percent that holding is of total holdings of the fund, using the two par values ad...

MrJedi wrote: ↑Thu Mar 30, 2023 9:08 am The article seems to ignore annual tax drag from taxable dividends in a taxable account. I agree the tax arbitrage isn't as great as in the past due to falling tax rates though.

The 12% bracket pretty much corresponds with the 0% bracket for cap gains and qualified dividends. But the bond portion would be subject to tax drag. In addition, I think most states tax cap gains and qualified dividends.

Call_Me_Op wrote: ↑Thu Mar 30, 2023 7:57 am Don't know about you, but my marginal tax rate is way higher than 12%.

Mine is 12% now, but most of the money went in at a 25% marginal rate and some at 15%. Now in retirement it is coming out at 12% (and going to Roth).

Marginal state tax rate is probably slightly lower as well, but probably only by about 1%.

I may be overlooking some things (I do not think the “phantom tax” will be a major impact on this amount) and I have never purchased TIPS let alone on secondary market in taxable account, so appreciate your feedback. I have never used them in taxable either and don't think the "phantom tax" is a real issue, but I wonder how much of a headache the reporting is? Does the brokerage provide a 1099 for this, so it's just a matter of transcribing their figure(s) into the tax software? If I were going to do something like this and had a sufficient taxable account, I might buy the TIPS in my IRA. Then via exchanging those for something held in taxable and selling the taxable investment, effectively use the TIPS for that expense. For exam...

MisterMister wrote: ↑Wed Mar 29, 2023 9:19 am

jeffyscott wrote: ↑Wed Mar 29, 2023 9:13 am ^That's about a 0.3% gain for 18 days, over 6% annualized just based on 0.3 x 365/18. For comparison, I see a T-bill for 4/18 with a price of 99.79 and YTM just over 4%, that will gain about 0.21% in 19 days.

Right, well the settlement would be tomorrow, so 16 days to 4/15. If my own calculation is right you'd need annualized simple interest of 6.9% on the sale proceeds to break even.

I was using Monday the 17th, since the 15th is a Saturday.

^That's about a 0.3% gain for 18 days, over 6% annualized just based on 0.3 x 365/18. For comparison, I see a T-bill for 4/18 with a price of 99.79 and YTM just over 4%, that will gain about 0.21% in 19 days.

I understand that the final payment is already known. ... I wondered whether those TIPS are currently overvalued and thus could be sold for a higher price than at maturity. In that case, you can just look at the sell/bid prices. But since these are now, effectively, nominal bonds why would anyone pay you more now than what they will get when the bond matures in two weeks? I see 100.074 for the sell price, inflation factor is 1.20381 for an inflation adjusted price of 120.4708 or $1204.71 per bond. So that's about $3 less than it's $1207.57 value at maturity. To get the exact transaction results, I should actually be using tomorrow's inflation factor and account for accrued interest. But ignoring that, I get 5%+ annualized, using a $2.86 ga...

I understand that the final payment is already known. ... I wondered whether those TIPS are currently overvalued and thus could be sold for a higher price than at maturity. In that case, you can just look at the sell/bid prices. But since these are now, effectively, nominal bonds why would anyone pay you more now than what they will get when the bond matures in two weeks? I see 100.074 for the sell price, inflation factor is 1.20381 for an inflation adjusted price of 120.4708 or $1204.71 per bond. So that's about $3 less than it's $1207.57 value at maturity. To get the exact transaction results, I should actually be using tomorrow's inflation factor and account for accrued interest. But ignoring that, I get 5%+ annualized, using a $2.86 ga...

Hello all. I'm looking at purchasing T-bill through Vanguard. This will be my first time buying T-bill. Not sure why I'm nervous about it, maybe it because its a large amount for me. I have 50k to invest in t-bill. When I go into vanguard, I see a 17 week bill with a 4.843 indicative yield, settle on 4/04/2023 mature in 08/2023 There is also a 2 month US treasury bill at 4.224 mature in 05/30/2023. If I were to go with the 17 week, what is the estimated interest I will be getting from the 50k? I was initially going to put money into the high yield saving at 3.75 as well as get a CD but I like that the t-bill is only taxed at the federal level. At any rate, if someone can please advise, I would greatly appreciate it. Thank you. 17 weeks is ...

MisterMister wrote: ↑Tue Mar 28, 2023 4:36 pm ^ Ha. Thanks; what I get for posting when half asleep!

Well, I don't know about where you are, but 6 inches of snow here just a couple days ago makes it seem like it would be about 6 weeks to mid-April.

^ Actually it's only about 2 weeks to maturity for the 4/15/23.

You can find the index ratio at:
http://eyebonds.info/tips/2023/tips2023_04a.html

I see 1.20757 on the day it matures there. Thus for each of those TIPS you will get $1207.57, plus a coupon payment.

St. Louis Fed's "How the Fed Implements Monetary Policy" (in plain English), includes:

Open Market Operations: Maintaining Ample Reserves
Open market operations are the buying and selling of government securities by the Federal Reserve.
https://www.stlouisfed.org/in-plain-eng ... ary-policy

Does this not mean that, in addition to other actions, the Fed would buy and sell T-bills in order to keep the short term interest rate near their target?

The physical branch does grant some additional security. If I received a large check or if I need a cashier check in a hurry. If my account gets frozen, it would be easier to resolve if you have a physical branch. I think the recent hike in interest rate has increased the spread between physical bank and HYSAs. A few years ago the spreads maybe like 0.5%, which is peanuts. Now HYSA yield 4%, while old school banks yield I think the benefits of having a physical bank that one can actually walk into and deal with another human being have been underestimated any more. Also aside from accounts there are still such things as safe deposit boxes, places to unload ten pounds of coins, and places to obtain newish $100 bill if travelling to Argentin...

I keep about $2k as spending buffer at suboptimal rate. My pay checks get deposited there and it immediately get a fixed amount transferred to a high savings account and other investments. The rest get earmark for bills. I find that some older population store money in subpar accounts because they don’t trust banks without a physical branch, but as they age their ability to get around is reduced, restricting the branch they can visit. This can come in a high cost. The storage of money at subpar rates cost my mom about $800 a month in interest. After much argument, I manage to reduce the loss by convincing her to transfer 2/3 to high yield account but she won’t do more even at a loss of profit. The reason is that she feel it is unsafe. My v...

Been literally decades since I balanced a checkbook. The time was mainly wasted as the banks computers were almost always better at simple arithmetic than I was, especially when I made a transcription error. Wasn't that the purpose, to find your errors? I kept a register because of the delay in checks clearing, so this allowed me to see the projected balance. The balancing was to make sure that my figures agreed with the banks and if they didn't, I would then look for and find my errors. When the check register became a spreadsheet, this eliminated one class of errors. The purpose of maintaining it is still to see the projected balance, but instead of uncleared checks it's about bills scheduled to be paid. Not in this case. The transcripti...

dcabler wrote: ↑Tue Mar 28, 2023 5:06 am
Been literally decades since I balanced a checkbook. The time was mainly wasted as the banks computers were almost always better at simple arithmetic than I was, especially when I made a transcription error.

Wasn't that the purpose, to find your errors?

I kept a register because of the delay in checks clearing, so this allowed me to see the projected balance. The balancing was to make sure that my figures agreed with the banks and if they didn't, I would then look for and find my errors.

When the check register became a spreadsheet, this eliminated one class of errors. The purpose of maintaining it is still to see the projected balance, but instead of uncleared checks it's about bills scheduled to be paid.

I use a simple Google Sheets spreadsheet to track tickers, share counts, performance and an approximate total portfolio balance. Updating that spreadsheet regularly (usually semi-monthly, sometimes less often) I will quickly notice any discrepancy. As others have mentioned this is typically due to a distribution, dividend or brokerage expenses. This is enough to allow me to sleep well at night. Similar here, each time I make a transaction I enter the change in shares on the spread sheet when I get the confirmation email, then when the monthly statements are available I check the numbers. The share prices automatically update on this sheet and the spreadsheet shows the total balance as well as the asset allocation. At the end of each month,...

I am talking about pure cash interest in Interactive Brokers.. not what you get in the money market funds. How much interest Vanguard and Fidelity pay on Cash.. without having to roll it into a money market instrument? At Fidelity, they will auto-liquidate any of their MMKT funds to make a transfer. However, any money coming in goes to the 'core sweep' account, so to get it to a MMKT fund, you have to do a buy. Will that morning sell/transfer of a MMKT fund be a today transfer, or would it always be over-night since a sell is involved, I don't know, I've never done one that way. Money coming in will go directly to a money market fund at Fidelity without making a buy order, if you have chosen a money market fund for your "core" po...

TheTimeLord wrote: ↑Sun Mar 26, 2023 11:57 am

jeffyscott wrote: ↑Sun Mar 26, 2023 11:51 am ^But what about those who missed out because all their money was already invested.

Where'd the money to buy the 3 year come from?

In this specific instance, unutilized funds from a matured LMP ladder rung.

Okay, so just reinvesting when the money was available to do so. Did you pass up higher rates for shorter terms when you bought the 3 year?

Why I see the game worth it: $1 million provides $40k a year in spending if using a 4% withdrawal rate. $1 million also can provide at least $2500 bonus every year That $2500 decreases the withdrawal from 4% down to 3.75% which is a really big deal and in my opinion worth even a few hours of my time. Now what if you had, say, $5 million, yet still had no desire to spend more than $40K per year from your portfolio? You are already at less than a 1% withdrawal rate. Is it still worth the effort just to increase the value of your estate? If I had $5 million I would be spending closer to $200k. I know this because as my wealth increases so does my spending. If I could get a bonus of $12,500 for my $5million with little effort I would do it. I ...

^But what about those who missed out because all their money was already invested.

Where'd the money to buy the 3 year come from?

^Yes, I but I am talking about buying/selling securities (not issuing), in order to achieve the target short term rate set by the Fed.

EnjoyIt wrote: ↑Sun Mar 26, 2023 8:38 am Why I see the game worth it:

$1 million provides $40k a year in spending if using a 4% withdrawal rate.

$1 million also can provide at least $2500 bonus every year

That $2500 decreases the withdrawal from 4% down to 3.75% which is a really big deal and in my opinion worth even a few hours of my time.

Now what if you had, say, $5 million, yet still had no desire to spend more than $40K per year from your portfolio?

You are already at less than a 1% withdrawal rate. Is it still worth the effort just to increase the value of your estate?

Interactive Brokers pay 4.33 % for cash . They pay fed funds rate minus 50 basis points and reflect new rate the day after the fed action. No settlement fund or sweeping needed. But need minimum 100k equity in the account and first 10k cash get no interest. This is lower than Vanguard and Fidelity... I am talking about pure cash interest in Interactive Brokers.. not what you get in the money market funds. How much interest Vanguard and Fidelity pay on Cash.. without having to roll it into a money market instrument? At Fidelity, they will auto-liquidate any of their MMKT funds to make a transfer. However, any money coming in goes to the 'core sweep' account, so to get it to a MMKT fund, you have to do a buy. Will that morning sell/transfer ...

Scorpion Stare wrote: ↑Fri Mar 24, 2023 10:30 am Though in the following newsletter he talks more about the specifics of the Credit Suisse case. Rather than Credit Suisse zeroing its AT1s through their built-in triggering mechanism, the AT1s were zeroed by the banking regulator as part of its larger action to save the bank. Bank rescues in general take place in a sort of legal no-man's-land where normal procedures are frequently tossed out the window.

So it seems that even though it may have happened in a different way than specified in the prospectus, etc., the fund managers at PIMCO, etc. that chose to buy these things (and are now suing), knew or should have known that this was a possible outcome.

So the Fed should be selling (more) T-bills in order to try to push the short term rate back up to it's target, right?

tibbitts wrote: ↑Sat Mar 25, 2023 4:03 pm

beernutz wrote: ↑Sat Mar 25, 2023 3:47 pm Pls define sub-optimal thx.

That's a good point.

It's not, since the OP did state under 2% as their criterion/definition.

I've been thinking about just consolidating everything at Fidelity and no longer chasing bonuses/etc. If I'm xferring low 7 figures (across multiple accounts) to Fidelity, does anyone know whether they may provide some un-advertised xfer bonus? I assume I'd need to call them and see, but wanted to check others' experiences first. I only started this bonus chasing last fall. I often ponder if it’s worth vs. the benefits of consolidating, especially to make things smoother for my wife in the event something was to happen to me. But for now, chasing seems to win. If I may ask, what was the main factor for you to want to consolidate? It's a part time job. But pays well. All that matters if your wife needs to step in is what you have currently ...

Checking account balance ranges from maybe about $1-4K during most months. Nothing else is below the OP's criterion of 2% (actually nothing else is under 3% and only about another $2K is under 4%).

miket29 wrote: ↑Sat Mar 25, 2023 2:50 pm

Galen wrote: ↑Sat Mar 25, 2023 12:29 pm Is my money earning me 5.188% from March 2, 2023 till March 31, 2024 ? Or is that 5.188% a red herring

Yes and no. It depends on what you mean by "my money earning me".

The replies pointed out the returns you will get and, as you suspected, the coupon payments do not take part in this calculation.

In colloquial usage earning a rate means your money compounds at that rate.

Only the money that remains invested is expected to earn the rate and compound.

If it were a savings account, any money withdrawn is no longer earning or compounding. The Treasury coupon payments are like a (forced) withdrawal.

I've been thinking about just consolidating everything at Fidelity and no longer chasing bonuses/etc. If I'm xferring low 7 figures (across multiple accounts) to Fidelity, does anyone know whether they may provide some un-advertised xfer bonus? I assume I'd need to call them and see, but wanted to check others' experiences first. I only started this bonus chasing last fall. I often ponder if it’s worth vs. the benefits of consolidating, especially to make things smoother for my wife in the event something was to happen to me. But for now, chasing seems to win. If I may ask, what was the main factor for you to want to consolidate? It's a part time job. But pays well. All that matters if your wife needs to step in is what you have currently ...

anon_investor wrote: ↑Sat Mar 25, 2023 11:36 am I guess it is the settlement account interest. But 0.45% is terrible since you miss out on a week of T-Bill earnings which is currently over 4% annualized. The fact that Schwab lets you do it manually, but their autoroll service doesn't seems just wrong.

Sure, I'd never use it under those conditions.

There's the same sort of issue in reverse with Fidelity, they let you use anticipated proceeds only when using autoroll. But it's much less significant, since you can have a money market for your settlement fund at Fidelity.

Eno Deb wrote: ↑Sat Mar 25, 2023 10:48 am From what I read the main point made by BofA appears to be that large inflows into MMFs have historically signaled drops in the stock market.

Probably because the money was coming from selling stocks. But this time, isn't the money mostly coming from banks (and prime money market funds)?

Fidelity offers true treasury autoroll with no time out of the market. Schwab keeps your money out of the market 1 week and gives no interest. Is it no interest, or whatever paltry amount the settlement account pays? (apparently 0.45%, currently) Conversely, at Schwab you can apparently do a manual roll with no time out of the market: There was an earlier discussion of the mechanics of rolling tbills at Vanguard, including whether the proceeds from maturing bills could be used to settle the next auction, but I'm not seeing the conclusion. https://www.bogleheads.org/forum/viewtopic.php?p=6721037#p6721037 Apologies since I'm probably missing something. There's a 13 week tbill auction every Monday (other than holidays) which settles on Thursd...

Schwab pays better bonuses, they will generally match other brokerage bonuses. If you might buy secondary CDs, it is much easier to compare them at Schwab since they include the effect of the $1 per CD commission in the listed YTM. Fidelity does not, which makes it a pain to attempt to compare new and secondary CDs or even to compare yields on secondaries of different terms. OTOH, Fidelity charges less for quantities less than 10 as Schwab has a $10 minimum commission. The other advantages that I know of would only matter to some mutual fund investors (like me). Schwab makes it easier to use anticipated proceeds from a mutual fund sale to buy something else. With no margin and no cash, I can effectively do same day exchanges (in dollars) by...

NabSh wrote: ↑Sat Mar 25, 2023 8:37 am There have been a couple of blog posts about Bank of America warning that next bubble is in Money Market because of high inflow.

They are probably hoping to scare people into putting money in "to big to fail" B of A at near 0%, instead .

The high inflows are only to treasury money market funds. So it should be a "bubble" in T-bills. After the run on SVB and it's subsequent failure, 1 mo T-bills went from about 4.8% to 4.1% in just 7 business days and are now back up to about 4.3%.

I don't know what happened to the securities held by prime money markets over that time frame, but brokered CD rates have certainly risen quite a bit, while treasury yields have dropped, making for some pretty big spreads.

^They are at least essentially the same thing. As #cruncher put it at the link below:

"There is a slight difference in the meaning of yield for a Treasury note and the Annual Percentage Yield (APY) of a CD. But it's not enough of a difference to worry about."

viewtopic.php?p=6890787#p6890787

The guaranteed reinvestment rate does eliminate that risk, but that's a different issue from the yield.

^Why would you need a calculator? I'd just compare the YTMs to the APY for the bank CD.

Treasury coupons (if any) are paid in cash, just like brokered CDs.

For a treasury that has been sold, am I correct in assuming that the YTM shown on the confirmation is based on the price (and accrued interest) that I got? Meaning that had I kept the treasury, the YTM shown is the yield I would have earned for the remaining term, assuming the current value was what it sold for. The YTM probably is simply calculated from the price. You received the bid price. Whether or not the indicated YTM is what you would have earned depends on what price you want to base you yield calculation on. If you want to use the bid price, then yes, but that's not what you'd pay if you bought the Treasury--you'd pay the ask price. You might want to calculate the yield based on the midpoint between the ask and bid, assuming that...