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by Kevin M
Sun Feb 25, 2024 10:17 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

MtnBiker wrote: Sun Feb 25, 2024 10:13 am The nominal amount of an RMD is known on January 1 of the year it is to be taken. Are you missing my point that waiting to take the RMD until late in the year doesn't change its dollar amount in nominal terms? Or am I missing something?
Yes, I caught this and posted about it before seeing this post of yours. You are correct.
by Kevin M
Sun Feb 25, 2024 10:16 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

Kevin M wrote: Sun Feb 25, 2024 8:38 am
MtnBiker wrote: Sat Feb 24, 2024 10:13 pm My understanding is that the RMD for 2025 will be based on the tIRA balance on December 31,2024 (less than 1 year from now). Why are you increasing the assumed $1M value by 2 years growth when calculating the expected RMD for 2025?
As you mention later, because I plan to take my RMD late in the year, as I have been doing from my inherited IRA, so closer to 2 years from now than 1.
I realize now that my brain was not working correctly here. As you say, the 2025 distribution is based on the value at the end of 2024, so it doesn't matter when in 2025 I take my distribution. I should only be assuming one year of growth for the IRA value, and one year of inflation for deflating the RMD value.
by Kevin M
Sun Feb 25, 2024 10:12 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

TIPS yield (to maturity) is a real yield, based only on the real (unadjusted) price and real coupons. We don't know the nominal yield because we don't know what inflation will be. Similarly, we know the real return, which is pretty much the real yield, but we don't know the nominal return. Thanks, that what I was thinking, too. Thank you for confirming. What I find ironic is that for TIPS, you don't know the actual return you will get but you will get the real return that is after inflation. If I had nomimal bonds, the reverse is true. I know what the actual return will be but I won't know what my real return is because I have no idea what inflation is in the future. Exactly! This is why it's better to think in real terms for TIPS. We assu...
by Kevin M
Sun Feb 25, 2024 9:37 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

Nothing is reported to the IRS for bills sold before maturity, so this is all on you to do. Contrary to what you state about Schwab, they did not report anything on Schedule B for bills sold before maturity on my 1099-B for 2019. So the IRS doesn't have anything to audit it against. My Vanguard brokerage statement indicates that it reported date sold, description of property and proceeds to the IRS. It did not report “Date acquired,” “Cost or other basis,” and “Gain or loss (-)” to the IRS on bills sold before maturity. Interesting. Thanks for sharing. Either way, the way you are supposed report it is the same. The acquisition discount is reported as interest on Schedule B, and the remainder is capital gain or loss reported on Schedule D.
by Kevin M
Sun Feb 25, 2024 9:34 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

I have decided to try to educate myself some more since I like to understand what I am buying. So yield to worst and yield to maturity for a TIPS is equal because TIPS are not recallable. Yield to maturity would be the annual return of the TIPS if you held it to maturity. However, TIPS has an inflation component, so for example, $1,000 bond would be a $1,030 bond at the end of the year and the interest rate is based on that principle updated amount. Is Yield to maturity not going to count the inflation component? TIPS yield (to maturity) is a real yield, based only on the real (unadjusted) price and real coupons. We don't know the nominal yield because we don't know what inflation will be. Similarly, we know the real return, which is prett...
by Kevin M
Sun Feb 25, 2024 9:05 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

I'm not seeing the need to increase your TIPS ladder rung size in order to match expected RMDs. You apparently do not need cash beyond the extent of your existing ladder (except maybe for additional income taxes), so the additional withdrawal to get up to the RMD amount could be any asset, either in-kind or sold and withdrawn as cash. That asset should be chosen to match your investing goals. Maybe TIPS are a match for that, maybe not. I would suspect that anyone over-funded might hold stocks for legacy, for instance. Good insight. I think I addressed this in my reply to MtnBiker. I do indeed think I should increase my stock allocation at some point, but I'm a market timer when it comes to doing things like this. The market gods and my avo...
by Kevin M
Sun Feb 25, 2024 8:38 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

This thread is interesting to me since my first RMD will be due the same year as yours. But it seems you are trying to solve a problem that only exists because your entire tIRA is in TIPS, and maybe you want to avoid holding TIPS in your taxable account? My IRA is 1/2 TIPS and the remainder is part of my risk portfolio. To the extent that RMDs will exceed DARA, a portion of the risk portfolio will just be moved from tIRA to taxable (or spent). Good observation, and what you're doing sounds fine. I haven't thought too deeply about it yet, but here are some thoughts to consider. In another thread we've been having a discussion about what the riskless asset is. I learned this some years ago from BobK (aka bobcat2): In the theory of portfolio ...
by Kevin M
Sun Feb 25, 2024 7:53 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

mamster wrote: Sat Feb 24, 2024 10:35 pm
Kevin M wrote: Sat Feb 24, 2024 6:05 pm For purposes of determining DARA, we need to translate everything to real dollars as of our base date (since the R in DARA stands for "real").
What does the second A stand for? If the answer is just that "DARA" is easier to say that "DARI," I accept that completely.
Good catch. There was an error in the OP where I used "income" instead of "amount", so it should be Desired Annual Real Amount; I've fixed it. This this is the term used by #Cruncher in his spreadsheet. The tipsladder.com tool uses the term Desired Annual Real Income. Either one works for me.
by Kevin M
Sun Feb 25, 2024 7:38 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

What I really favor is to first determine the needs to be met. Only after that can an appropriate choice of investments be made. For example, I have portions of my portfolio that are explicitly for LMP. Those needs are all real, they all have defined timelines, and therefore they can be matched with inflation-adjusted bonds. I use duration-matched TIPS funds instead of individual bonds for reasons not relevant right now -- I believe you use individual TIPS for that purpose. I have a portion set aside as reserves. The primary requirement is basically to maintain value and be fairly insensitive to inflation surprises. I use a short-term TIPS fund for that, and don't bother worrying too much about a 2.5 year duration. I have a portion that is...
by Kevin M
Sat Feb 24, 2024 7:25 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

Using example numbers, I came up with an estimated 2025 RMD of about $38K. However, I'm building the ladder in early 2024, and likely will not take my RMD until late 2025, so that's almost two years from now. Since #Cruncher's spreadsheet generates the DARA in dollars based on a base date, for which I am using the settlement date for TIPS purchased today, there will be almost two years of inflation between now and my first RMD, so I need to deflate that $38K accordingly. As I was working this out for this post, I realized that there also will be almost two years of nominal growth in the IRA value, so I need to factor that in as well; my IRA is almost all TIPS, and will be all TIPS soon. Even though it will be a little less than two years, I...
by Kevin M
Sat Feb 24, 2024 6:33 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

I've pretty much concluded that the value of Markowitz is more in the concept than the practice. I pretty much agree with you. I find that portfolio theory and CAPM are useful ways for me to think about risk and return, but probably not so much in the nitty gritty of constructing a portfolio. Part of thinking about risk and return is thinking about analyses like the ones in this thread, and trying to determine if they are a valid way to analyze the risk/return tradeoff, and whether or not they are useful in making portfolio construction decisions. I've mostly concluded that they are not, for all the reasons I've stated in my replies in this thread. I've now worked myself into the corner where I like the efficient frontier of assorted combi...
by Kevin M
Sat Feb 24, 2024 6:05 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Re: Building a TIPS ladder for IRA RMDs

Questions: 1. Would you only need to increase the $27K DARA by the amount of the tax due on the $38K RMD? (The tax would be the expense, or the amount spent from your portfolio). I hadn't even thought about income taxes, but that's a good question. A higher RMD will result in a higher income and therefore more tax. This gets at how you estimate your residual expenses, and of course your expenses include taxes. For my first pass I just roughly estimated my residual expenses as the amount of my expenses currently not covered by social security, and in our case we have a relatively small income from rental real estate, so that reduces residual expenses a bit. But of course our taxable income will increase once I start taking RMDs. And it will...
by Kevin M
Sat Feb 24, 2024 2:43 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

gavinsiu wrote: Sat Feb 24, 2024 2:14 pm Thanks everyone. One more issue is the min quality. For example for one of the bond it's listed as 97.396 11,000 (150). I recall the price is by lots of 100 so it's $97.396 per 100 and the quantity is by 1000 so I need to purchase a minimum of $150K?
You need to look at depth of book to see quotes for smaller min quantities.
by Kevin M
Sat Feb 24, 2024 2:11 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2926

Building a TIPS ladder for IRA RMDs

I've been building a TIPS ladder in my IRA recently, using the Desired Annual Real Amount (DARA) that I estimate to be my residual expenses (not covered by Social Security or any other safe income stream). More recently I estimated my traditional IRA RMDs that I'll begin taking in 2025, and I discovered that my RMDs will be significantly larger than my DARA. So I think that after a first pass in which I get the ladder built using my initial DARA, I'll most likely do a second pass where I beef up the DARA to equal my estimated RMDs. This requires making a modification to #Crunchers TIPS ladder spreadsheet , which I've been using to help build my ladder, to allow different amounts of annual real income for each year. I posted a little about t...
by Kevin M
Sat Feb 24, 2024 1:16 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

The fourth choice, correctly mixing gains and interest as the statutes require, has not been documented here to my knowledge as something brokers do. It's not up to the broker to do it, it's up to you. Moving part of the interest over to STCG is awkward since it requires either a replacement or an adjustment to Fidelity's 1099-INT. The former would cause Fidelity's IRS-reported interest sum to differ from my revised value and the latter requires an adjustment line item. I suppose either of those might be red-flagged by the IRS were the amounts not so tiny. It's common to need to make adjustments to interest, so there should be no issue with the Schedule B having different amounts than the 1099-INT. Two other examples are making an adjustme...
by Kevin M
Sat Feb 24, 2024 12:51 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

So Here's a screenshot I am having some difficult interpreting the fields. Coupon must equal the coupon the of the bond. There seems to be 3 different yields: yield, yield to worst and yield to date. I am not sure how they differ from coupon. Why is the inflation factor different? Shouldn't all inflation be the same or is this some sort of inflation over the life of bond? Not sure what price I would be paying. There are really only two yields: ask and bid. YTW is the same as YTM for Treasuries, so you can ignore it. On the bid side they show it as "Yield", but it's the same as Yield to maturity on the ask side. Ignore the coupon. Do a web search on yield to maturity, and you'll learn how coupon, price and yield are related. Infla...
by Kevin M
Sat Feb 24, 2024 12:44 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

Ok, I managed to cut my teeth an purchase a 3 rung ladder of Tbill for 4, 8, and 13 weeks. That was not as difficult as I thought. Now I like to create a 5 rung TIPS ladder of equal amounts. Unlike the TBill there won't be any primary market except for 5 years, so I am at a loss when I attempt to search for bonds on the secondary market. The bonds come in different yields because they are from different issue dates. I imagine bonds with higher yields would be pricier. If my goal is to just buy one and hold to maturity as part of a rolling ladder, how do I select the bond? The simple answer is to not worry about the coupons or yields--just pick the month you want your bonds to mature in, and buy the ones that mature in that month. The reaso...
by Kevin M
Sat Feb 24, 2024 11:13 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

I appreciate the patient ongoing tutelage! There might be a slight price premium for TIPS with low index ratios, but before you analyze that, you need to adjust for seasonality, which can have a large impact on the yield--much larger than any potential impact from index ratios. Quoting can be tricky. That was me, not jeffyscott, that said that: There might be a slight price premium for TIPS with low index ratios, but before you analyze that, you need to adjust for seasonality, which can have a large impact on the yield--much larger than any potential impact from index ratios. I've looked a bit at wiggles left after adjusting for seasonality, and it wasn't apparent to me that they could be explained by either index ratio or coupon. If you c...
by Kevin M
Sat Feb 24, 2024 11:08 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

Keep in mind the asymmetry here, Kevin: 1. I’m fine with your preferred approach (risk over the period), and I thought this last post of yours was particularly informative (certainly to me), and useful for readers of this thread to see, which is why I've reproduced it in full. 2. But you are not fine with my approach (standard deviation of annual returns), and, if I am reading you correctly, want me to stop it. I call on Markowitz (2013) for support; but that book is not part of your kit bag. Which suggests that we will once more begin talking past one another … 1. It's not my approach, it's the approach used in standard portfolio construction, per the academics quoted by BobK and by me, including Markowitz according to my investment textb...
by Kevin M
Sat Feb 24, 2024 10:30 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

A lot of impressive posts! bobcat2: "Here is a summary of what constitutes the riskless (safest) asset for different investor decision horizons and different units of account." Kevin, by "decision horizon," does bobcat2 mean investment horizon? I would say yes. And for someone decumulating uniformly from a fund matched to that horizon, does the horizon roughly equal half of the remaining period of the decumulation? (Assume that the annuity option that bobcat2 refers to is ruled out.) I think that's correct. It might be useful to discuss decision or investment horizon, maturity, and duration. In one of Bob's examples he says: If the decision horizon is 20 years then the safest asset is a 20 year zero coupon Treasury bond...
by Kevin M
Fri Feb 23, 2024 3:15 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

rich126 wrote: Fri Feb 23, 2024 3:06 pm I'm thinking I might get hit with some penalties because I wasn't tracking the interest on bonds and it looks like I made over $22,000 in treasuries interest. A lot of it was on money I was holding for a house purchase.

I'll have to pay more attention in 2024 but won't have that huge chunk in a taxable account like I did in 2023.
Huh? Didn't you receive 1099-INT and 1099-B forms from your broker showing any interest, capital gains, and accrued market discount on these Treasuries?
by Kevin M
Fri Feb 23, 2024 3:13 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

In July 2022 I bought a Treasury Bill on the secondary market through Ally Brokerage, selling in April 2023 (two months prior to maturity) for a $409 gain. I contacted Ally asking when I should expect to receive a 1099 and received the following response. "Thank you for your inquiry. We've been informed by our clearing firm that sales of T Bills are not required by the IRS to be reported on the 1099. This is why you did not received a 1099 for your account for tax year 2023." Can I simply create a 1099-INT in FreeTaxUSA as if I received one from Ally, reporting the $409 in Box 3? Will not having a 1099 cause any issues? I checked my 2019 1099 from Scwhab; I sold some bills before maturity that year. The only place numbers for tho...
by Kevin M
Fri Feb 23, 2024 3:03 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

A completely different question regarding TIPS. In 2022, TIPS OID was $97.25 and in 2023, TIPS OID was $81.49, despite the fact that in 2023 I owned 25x the TIPS I owned in 2022. I am confused about how the OID (phantom income) was almost identical despite owning a lot more TIPS in 2023. Is that primarily due to fact that inflation was much higher in 2022 than 2023? Yes, inflation was much higher in 2022 than in 2023. Oct CPI sets the Jan 1 ref CPI, so Oct 2022 set the ref CPI for Jan 1, 2023. YoY inflation from Oct 2021 to Oct 2022 was 7.75%, so that was the inflation adjustment total for 2022. YoY inflation fromm Oct 2022 to Oct 2023 was 3.24%, so that was the total inflation adjustment for 2023. https://i.postimg.cc/65cMrr8J/image.png
by Kevin M
Fri Feb 23, 2024 2:47 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

The graphic does emphasize that the likelihood of an extended period of deflation is quite low. Additionally, even if it should come to pass, the purchasing power of my owned TIPS would remain stable, even if they drop in nominal terms. But, if inflation just diminishes (e.g., the current stated goal of the Fed--let's say it goes from current 3.x% down to 2%), doesn't the value of the TIPS (even if held to maturity) drop? That is a much more likely scenario than extended deflation. Here is the accurate way to state what I think you're trying to say: If average inflation between purchase and maturity is less than breakeven inflation (BEI) at the time of purchase, the TIPS will earn less (in nominal terms) than the nominal Treasuries maturin...
by Kevin M
Fri Feb 23, 2024 12:51 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

life_force_prana wrote: Fri Feb 23, 2024 12:26 pm Ok so if I understand correctly, buying at reopen or secondary will both end up with non de-minimus discount, which will have to be reported when preparing 2034 taxes as an add to OID and interest income for 2034 taxes on Schedule B? Thanks.
Correct. There will be a negative adjustment for the capital gain on 1099-B (lesser of market discount shown in box 1f or proceeds minus basis), and a corresponding positive interest entry that flows to Schedule B. With HRB we do the interest part with a dummy 1099-INT.
by Kevin M
Fri Feb 23, 2024 12:46 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

I keep coming back to a more fundamental question that I think a few others have also come close to expressing and I haven't seen answered here. When evaluating BND (or frankly any bond fund) how likely are you to receive the current yield expressed in total return at various points out into the future (1 year, 1D, 2D-1)? I have no idea how to quantitatively answer this question so maybe someone can point me to some resources on how to answer this myself. Or maybe even a previous thread where this has already been done. I shared some analysis I did of this some years ago. I evaluated 5-year and 10-year holding periods for BND and some other funds, comparing the realized annualized return to the initial SEC yield. It turned out that the del...
by Kevin M
Fri Feb 23, 2024 12:32 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

As I think I've worked out, and explained at the end of my last post, we don't give up anything in terms of real return by cashing out early if we sell for more than 100. The bid price now at Schwab is 100.05078. All we're giving up is the interest we'd earn between now and maturity, and the inflation adjustments for March and whatever they end up being for April (Feb adjustments are negative). But as I explained previously, if we use the proceeds to buy other TIPS, we get the same inflation adjustments, and we get whatever coupon interest those TIPS pay. More importantly, we get a known, good yield, when we don't know what yields will look like mid-April. Trying to wrap my head around the point, where the interest rate risk approaches zer...
by Kevin M
Fri Feb 23, 2024 12:01 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

gavinsiu wrote: Fri Feb 23, 2024 11:30 am I have look through this thread but missed the answer. So the phantom income is reported on the 1099-OID. Is what is reported on 1099-OID taxable by the state? If I am using nominal bonds for example, the interest is exempt from state tax.
The answer is in the OP. Take another look and let us know if you don't see it there. Don't look for the term "phantom income" though, because that's not what Treasury calls it.

I just checked a 2022 return that had Treasury interest and OID from TIPS, and verified that the sum of the interest and OID, less the accrued interest adjustment, appeared on the CA state tax return as a subtraction from income for US Treasury interest. This was done automatically by HRB tax software.
by Kevin M
Fri Feb 23, 2024 11:39 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

-- Proceeds in Feb 21 2024 Dollars -- Nbr Final Coupons Total Year Bonds Cost Principal Coupon Oth Bonds Proceeds 2025 8.000 9,252 9,503 6 560 10,069 If I buy 8 bonds for $9,252 and inflation goes down between now and whenever they mature in 2025, won't I get less than $9,252 back? Even accounting for interest that may have been paid every 6 months, couldn't I still be facing a significant total loss? My only guaranteed return of principal would be $8000 since the treasury will ensure you always get back a floor of $1k/bond, and so I could lose up to $1,252 minus a few percent of interest accrued. I am admittedly and obviously a novice in this space. Am I understanding this correctly? You've already received good answers, but let me add th...
by Kevin M
Fri Feb 23, 2024 10:12 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

Kevin, thanks for calling out a specific question, I think it helps us not to talk past one another. I am afraid I am one of those forum members who does not understand your ukase deeming 30-year analyses to be the one and only. I never said anything remotely resembling this, so I don't know where it's coming from. I said that we develop estimates of expected return and variance for a given holding period . If that holding period is one year, the the SD of one year anticipated returns is an appropriate risk measure and a 1y Tbill is the riskless asset (if our unit of account is dollars; it would be a 1y TIPS if our unit of account is purchasing power). If the period is different than one year, than the SD of one year returns is not the app...
by Kevin M
Fri Feb 23, 2024 9:24 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

To be clear, I'm not suggesting someone with a 30 year horizon put the entirety of their fixed income portion into a 30 year TIPS. Someone who targets an expense in 30 years likely has similar targets for each year leading up to that point, and any rung of that ladder could be tapped in case of an emergency that exceeds their emergency fund. I agree that exactly balancing interest rate risk with reinvestment risk isn't for all investors, but surely some amount of matching makes sense - I do not think long-term bonds should be avoided by default. I personally think LMP is overrated. I just don't need so much safety when I already have SS, it's a duration matching tool by design. Most people already have the rungs set for them by SS, how muc...
by Kevin M
Fri Feb 23, 2024 9:19 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

First, this all may be true for you, but that doesn't mean it's true for all of us. I have no problem at all with the volatility of my 2047 TIPS (longest in my ladder), as I am 99.999% sure that I won't need to sell it before maturity. I have plenty of short-term Treasuries to handle short-term unexpected "life happens" events. I am sure you'll disagree with this completely, but what I am saying is the volatility of 30 year TIPS is not the problem for me personally, but that if I am going to lock up money for that long and have to endure the volatility then I will lock it up in something with equal volatility but better returns, i.e., equities. Obviously, it may sound crazy since there is no guarantee with equities, but over 30 y...
by Kevin M
Fri Feb 23, 2024 9:04 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

Thank you for the clarifications. I have individual TIPS as part of TIPS ladder in my taxable account. I bought Jan 2034 TIPS at auction recently and need to add to it to complete my ladder for 2034. I am trying to decide if I should buy these additional Jan 2034 TIPS in secondary market or wait till they reopening on 3/21/24 based on tax filing simplicity. Note I have Jan 2032 and Jan 2033 TIPS ladders complete in my taxable account purchased on secondary market. Trying to decide solely based on tax reporting simplicity ignoring real yield (meaning current yield is ok for my purposes as am fine waiting for whatever reopening auction yields). Given that my Jan 2034 TIPS were bought at auction at slight discount (YTM of 1.81 vs 1.75 coupon)...
by Kevin M
Fri Feb 23, 2024 8:55 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

In 2023 I bought individual TIPS as part of TIPS ladder build out in my taxable account at Fidelity. My consolidated 1099 has: - $81.49 of OID in box 8 of 1099-OID - $21.12 of accrued interest paid at purchases made in secondary market for these TIPS in supplemental info While doing taxes in TT, should I be reporting interest income of $60.37 (81.49-21.12=60.37)? In 2022, I had a CPA do my taxes. I wanted to learn about TIPS so bought small amount at auction in my taxable account in April 2022 that I sold in December 2022. Fidelity's 1099 showed: - $1.74 interest income in box 3 of 1099-INT - $5.93 bond premium in box 12 of 1099-INT - $97.25 of OID in box 8 of 1099-OID - $0.10 of accrued interest paid on purchase - ($168.66) loss on 1099-B...
by Kevin M
Thu Feb 22, 2024 2:47 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149298

Re: Taxation of Treasury bills, notes and bonds

In 2023 I bought individual TIPS as part of TIPS ladder build out in my taxable account at Fidelity. My consolidated 1099 has: - $81.49 of OID in box 8 of 1099-OID - $21.12 of accrued interest paid at purchases made in secondary market for these TIPS in supplemental info While doing taxes in TT, should I be reporting interest income of $60.37 (81.49-21.12=60.37)? In 2022, I had a CPA do my taxes. I wanted to learn about TIPS so bought small amount at auction in my taxable account in April 2022 that I sold in December 2022. Fidelity's 1099 showed: - $1.74 interest income in box 3 of 1099-INT - $5.93 bond premium in box 12 of 1099-INT - $97.25 of OID in box 8 of 1099-OID - $0.10 of accrued interest paid on purchase - ($168.66) loss on 1099-B...
by Kevin M
Thu Feb 22, 2024 2:11 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

My IRA is still with Vanguard and I use it to hold TIPS. Any idea why Vanguard never show any 1 unit quotes for 02/2049 TIPs? Any reason not to transfer my TIPS/treasury IRA to Schwab? Did you click the Show more link toward the left of the row for the 2049 in the bond search results, under the CUSIP? Right now I see min qty 5 for the 2049 and other TIPS that I spot checked, but it's no good to check unless the market is open. Usually they've had quotes for min qty 1 if I click Show more for anything I was interested in, but now and then they may not. Not only is there no good reason not to transfer to Schwab, but Schwab almost always, if not always, has better prices for small quantities of Treasuries, including TIPS. Often the best price...
by Kevin M
Thu Feb 22, 2024 12:55 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Buying at Vanguard on secondary market: detailed walkthrough

Newbie Question: For CUSIP 912828N30 above, a coupon of 2.125% is listed, with a bid Price of $100.007. The Yield to Maturity bid is 2.110%. Does this mean that because this TIPS costs more than $100/unit that the real interest rate is 2.110%? These aren't TIPS, they're nominal notes and bills. But I think what you're getting at is the relationship between yield, coupon and price. When coupon = yield, price = 100. If price is greater than 100, the yield will be less than the coupon. If price is less than 100, the yield will be more than the coupon. ... Thank you. I have a follow up question on the Index Ratio for calculating TIPS interest. From Treasury Direct: To calculate your inflation-adjusted interest, follow these steps: 1. Use the C...
by Kevin M
Thu Feb 22, 2024 12:53 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

We have roundtripped to vineviz's thread first 20% in Bonds You backtest an era of falling rates this is what you get. That doesn’t make it a good plan for the future. To be fair, this thread is predicated on backtesting, while vineviz's arguments were based on duration matching which doesn't depend on any prevailing interest rate environment or historical performance. And I do think people are incorrectly focused on short term performance/volatility (as Kevin M has pointed out) when what really matters is the performance/volatility over the investment horizon. If you need the money 30 years from now, a 30 year TIPS is as riskless as you can get, with a 30 year nominal Treasury being close (IMHO). Bond ladders and barbells make a lot of se...
by Kevin M
Thu Feb 22, 2024 12:33 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

I think I've mentioned in this thread (I know I have in some thread) that the Jul 2024 TIPS do not show up at Schwab when I do a search for bid and ask quotes for all TIPS. Here's what I see now: https://i.postimg.cc/kGfPfk6d/image.png We see the Apr and Oct 2024, but no Jul. As a side note, Schwab requires you to call if you want to buy the Apr 2024, since the yield is negative. This is a PITA for me, since I download the TIPS quotes daily, import them into a spreadsheet, and use the results to make buy and sell decisions, import them into my TIPS ladder spreadsheet, use them to create charts of yields vs. maturity, etc. What I've been doing is manually inserting the rows for the Jul 2024, and if I care about the prices and yields, copy th...
by Kevin M
Thu Feb 22, 2024 11:40 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

... But as I explained previously, if we use the proceeds to buy other TIPS, we get the same inflation adjustments, and we get whatever coupon interest those TIPS pay. More importantly, we get a known, good yield, when we don't know what yields will look like mid-April. This seems closer to just making a decision to buy the long term TIPS. The source of "cash" to do this could be a money market or short term nominal treasuries or your April TIPS that's almost become a nominal. I've already made the decision to buy the long-term TIPS. The only question is when. When I looked the other day, the April TIPS known inflation adjustments will add about 0.5% to your principal as of April 1. Assuming there's little chance of deflation app...
by Kevin M
Thu Feb 22, 2024 11:30 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Trading Treasuries (nominal and TIPS)

Not only is there no good reason not to transfer to Schwab, but Schwab almost always, if not always, has better prices for small quantities of Treasuries, including TIPS. Often the best price is for min qty 1. Does Schwab have some kind of structural advantage that makes this possible, or is this just a loss leader for them? Are their spreads for large quantities also lower than Vanguard and Fido? Just curious. I'm not likely to transfer my account, since my TIPS ladder is already built and the only future transactions I anticipate are yearly sales of 2033/2040 TIPS to fund auction purchases of 2034-39. I don't know how they manage it. I assume it's a way to attract smaller investors. Lately Fido has been offering best price/yield for min ...
by Kevin M
Thu Feb 22, 2024 10:35 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4106
Views: 455177

Re: Buying at Vanguard on secondary market: detailed walkthrough

... This takes me to the search results: https://i.postimg.cc/cJpv40wF/image.png ... Kevin Newbie Question: For CUSIP 912828N30 above, a coupon of 2.125% is listed, with a bid Price of $100.007. The Yield to Maturity bid is 2.110%. Does this mean that because this TIPS costs more than $100/unit that the real interest rate is 2.110%? These aren't TIPS, they're nominal notes and bills. But I think what you're getting at is the relationship between yield, coupon and price. When coupon = yield, price = 100. If price is greater than 100, the yield will be less than the coupon. If price is less than 100, the yield will be more than the coupon. As an aside, I had to pause when I saw the yields, since they are indeed in the ballpark of current rea...
by Kevin M
Thu Feb 22, 2024 10:05 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

Did you figure out your actual yield earned on those TIPS you sold before maturity? I have some April 2024 coming due too. I think you mean the actual return . The yield at purchase provides a good approximation of the return if held to maturity. For TIPS yield is expressed in real terms. I would think that my realized real return for TIPS I'm selling at a little over 100 is close to the initial yield--maybe a bit higher, because I'm selling at about par a couple of months before maturity, and yield is calculated based on maturity date and redemption value of 100. Of course the TIPS real yield tells us nothing about our nominal return, because we don't know what inflation will be when we buy them. We could evaluate nominal return against t...
by Kevin M
Thu Feb 22, 2024 9:58 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

Did you figure out your actual yield earned on those TIPS you sold before maturity? I have some April 2024 coming due too. I'll look into calculating my internal rate of return, both nominal and real, for the TIPS I'm selling now, and get back with the results. OK, I started looking at it. I recorded all of my purchases in a spreadsheet, so I have that to work with. The first challenge is that I bought my Apr 2024 TIPS at different times and yields. My first purchase was on 4/11/2022 (settlement), almost two years before maturity, at a yield of -1.66% (yikes!). Fortunately, only 17% of my total purchases were at negative yields. My last purchase was on 4/18/2023 (about one year before maturity) at a yield of 2.47%. This was by far my large...
by Kevin M
Thu Feb 22, 2024 9:05 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

Did you figure out your actual yield earned on those TIPS you sold before maturity? I have some April 2024 coming due too. I think you mean the actual return . The yield at purchase provides a good approximation of the return if held to maturity. For TIPS yield is expressed in real terms. I would think that my realized real return for TIPS I'm selling at a little over 100 is close to the initial yield--maybe a bit higher, because I'm selling at about par a couple of months before maturity, and yield is calculated based on maturity date and redemption value of 100. Of course the TIPS real yield tells us nothing about our nominal return, because we don't know what inflation will be when we buy them. We could evaluate nominal return against t...
by Kevin M
Thu Feb 22, 2024 8:54 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

There are multiple benefits you are missing: - portfolio efficiency w/ better asset correlation than long bonds (of any kind) - ability to reallocate or drawdown without worrying about extreme volatility Both of these are offset by purchase limitations so the key is to start early and max it every year. I mix Ibonds and the shorter duration vanguard TIPs fund. I didn't say there weren't any benefits to I bonds. I said that they are not appropriate to use as the riskless asset in portfolio construction for a long holding period. Remember, I am addressing the theoretical aspects of portfolio construction as it applies to a long holding period, like 30 years. Let me address your comments in this context. Portfolio efficiency applies to the mi...
by Kevin M
Thu Feb 22, 2024 8:51 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35029

Re: Can you do better than BND?

...Of course we don't have enough independent 30y periods to do any valid statistical analysis to determine these values, which is a big problem in doing the kinds of analyses McQ is trying to do in this thread. This is one of my main points. I've seen very little evidence that many Bogleheads actually understand this. With McQ being an academic (whose valuable contributions to our forum I'm extremely happy with!), I'd hoped that we could address this rationally in this thread, but so for, no joy. ... Kevin, we had begun to talk past one another, never a good thing, so no further dispute on my part. I do hope you will continue to post your views here on this thread. The Tobin (CML) perspective that you have been advancing, on balance, is l...
by Kevin M
Wed Feb 21, 2024 2:21 pm
Forum: Personal Investments
Topic: TIPS Ladders questions
Replies: 5
Views: 848

Re: TIPS Ladders questions

some questions about TIPS Ladders - I keep reading about the value/smartness of a retiree building a 20 to30 year TIPS ladder to guarantee inflation protected income but wondering if the pros and cons are fully understood (including by me) so I have some questions. - if you have $1m to $2m in fixed what is the net $ benefit compared to bond funds or laddering treasuries? (i know hard to say since i rates are unknown but is it 100% accurate that the tips ladder will always, 100% outperform non-tips alternatives listed and will be just as liquid)? if not what is the scenario in which TIPS gets outperformed? These are the wrong questions. Well, at least they're not the questions most of us building TIPS ladders are asking. The purpose of a li...
by Kevin M
Wed Feb 21, 2024 1:55 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

Jaylat wrote: Tue Feb 20, 2024 12:30 pm You will live with the consequences of buying 2044's for the next 20 years. Why obsess over piddling differences in a TIPS maturing in a few months?
Because I find it enjoyable.
by Kevin M
Wed Feb 21, 2024 1:53 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5672

Re: April 2024 TIPS

A little off-topic, but will the 2034-39 TIPS gap be filled in? Will the govt be issuing TIPS for this gap? First, there already is a Jan 2034 TIPS, so no gap there anymore. It was auctioned on Jan 18 this year. We can't say for sure, but they have been auctioning 10y TIPS each Jan and Jul since 2004. The have auctioned at least one 10y TIPS each year since 1997. So I think most of us assume that will continue, and we can fill one more gap each year through 2029. If for some reason they didn't issue a TIPS for a gap year, we would just sell some of our 2034s and 2040s, or whatever we have extra of in our ladder, to cover the gap year's expenses. The average duration of the 2034s and 2040s, if held roughly in equal proportions, is about the...