Fidelity's Spartan TIPS fund FSIYX: 33 bonds, weighted average maturity of 9 years, duration of 5.48 years.
Vanguard's TIPS fund VIPSX: 32 bonds, weighted average maturity of 9.4 years, duration of 9 years.
When comparing their charts on Morningstar, both are almost identical.
I'm puzzled over the large difference in duration. Can someone explain why the Fidelity duration is significantly less than Vanguard's given everything else is similar?
Vanguard wrote:The duration estimates the fund's percentage change in price for a given change in the real interest rates in the TIPS market.
Fidelity wrote:Duration estimates how much a bond fund's price will change with a change in comparable interest rates.
I suspect that by "comparable", Fidelity means interest rates on nominal Treasury bonds, not the real interest rates on TIPS. For example, assume that for every 1% point change in nominal rates, real interest rates change 5/8% point. Then you'd expect Vanguard's fund price to fall 8.5% X 5/8 = 5.3% for a 1% rise in nominal rates.
The problem with this is that there is no fixed relationship between nominal and real interest rates. In fact quite often they will move in the opposite direction. This makes an estimated "nominal" duration for a TIPS fund useless, in my opinion.
So I would ignore the duration reported by Fidelity. Since both funds probably have about the same holdings, I'd just use the duration reported by Vanguard for both of them. Or you could use the 8.76% I calculated (as of 2/8/2013) for the weighted average duration of all TIPS with maturities over 1 year. (See my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.)
Look, I realize I am clueless compared to all Bogleheads, BUT I have been trying to educate myself rather than just rely on paid (ie: self-interested) financial "advisors" and now I'm back to feeling overwhelmed.
All I want to know is: what TIPS fund can I buy at Fidelity that guarantees I will not lose principal + will make at least a tiny bit of interest + won't cost a lot every year in fees + can be left sitting there, untouched and safe, for, say, 10 or 15 years until I'm ready for it?
Thank you in advance for your simplified guidance aimed at someone whose head can only handle eensy weensy amounts of complexity.......
Who is online
Users browsing this forum: aristotelian, Blueskies123, coalcracker, #Cruncher, ctraveler, dbltrbl, Doom&Gloom, Flobes, jbmitt, Jinwood, junior, krow36, OnTrack2020, Outafter20, radiowave, randomizer, rick2427, rob65, savvyguy, teen persuasion, ThisTimeItsDifferent, vinicent, z-man and 93 guests