Inflation protected, VAIPX vs VTAPX vs VTIP

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Dan-Fl
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Inflation protected, VAIPX vs VTAPX vs VTIP

Post by Dan-Fl » Sun Feb 17, 2013 9:07 am

Morning all,
Have been noting chatter here regarding "bond bubble" and inflation protected discussions. When Taylor
Moves I listen and take note.
I am 67 retired and depend on my portfolio for income. My portfolio is basically 80% fixed and 20% equity. My portfolio is very simple and follow BH philosophy.
I tend to buy and hold
I am considering coming out of at least 75% out of VAIPX and going into VTAPX. Of course that carries that fee so wonder if moving to ETF VTIP would not be better idea.

VAIPX is adm intermed inflation protected fund
VTAPX is short term inflation protected fund
VTIP is ETF short term inflation protected holding

What is the thoughts of others in terms of what I am considering. I think Taylor has moved out of VAIPX with the guidance that this is what vanguard has done in the fund of funds. If it is good enuf for Vanguard and Taylor maybe I should follow their lead?
*****

Opinions would be valued
Thanks all
Dan-fl
Last edited by Dan-Fl on Mon Feb 18, 2013 7:54 am, edited 1 time in total.

livesoft
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by livesoft » Sun Feb 17, 2013 9:22 am

I own none of these, but here's what I think:

These events will cause many folks to switch from VAIPX to VTAPX. Thus all the selling VAIPX will cause the value to drop while all the buying in VTAPX will support its value. The question is then, do you believe this and if so, you had better get in early rather than later. Otherwise, you will be selling low and buying high.

Then after a year or so, prices will go back to normal.

So can Bogleheads create a little bit of panic selling and panic buying here? I think so.
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larmewar
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by larmewar » Sun Feb 17, 2013 11:03 am

VTPAX doesn't make a lot of sense to me due to the negative real rates and fund expenses. Estimated yield to maturity, without explicitly stating the projected inflation rate make it hard to understand exactly what one is buying.

5% of FI in individual TIPs held in IRA, because it isn't worth selling small lots. Another 4% in I-bonds. IMO, I-bonds are currently the most attractive FI option and I will be directing proceeds from maturing CDs to I-bonds, up to limits.

Lar

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by pryan » Sun Feb 17, 2013 12:04 pm

livesoft wrote:I own none of these, but here's what I think:

These events will cause many folks to switch from VAIPX to VTAPX. Thus all the selling VAIPX will cause the value to drop while all the buying in VTAPX will support its value. The question is then, do you believe this and if so, you had better get in early rather than later. Otherwise, you will be selling low and buying high.

Then after a year or so, prices will go back to normal.

So can Bogleheads create a little bit of panic selling and panic buying here? I think so.



On another post I wrote that I was unable to transfer from VAIPX to VTAPX because of the dollar amount ($300K). I am curious as to how much Taylor invested as they could not give me a maximum number. They seem to be trying to prevent your scenario. I have yet to find out whether they will let me do this in this amount. They will call me on Tuesday.

272 Sheep
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by 272 Sheep » Mon Feb 18, 2013 11:41 am

Makes sense to me if future inflation is a concern. It also makes sense, in this current environment, to shorten bond duration
to lower volatility. If Vanguard changed-out the intermediate infl-protected with short-term infl-protected in their retirement
asset-allocation accounts -maybe they know something we don't?

Carl W.

dbr
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by dbr » Mon Feb 18, 2013 11:49 am

272 Sheep wrote: If Vanguard changed-out the intermediate infl-protected with short-term infl-protected in their retirement
asset-allocation accounts -maybe they know something we don't?



They don't know anything we don't know. They have made a judgement that we can agree is astute if indeed that is our view. It could be they don't want to be in the position of justifying not going shorter if that turns out to have been a good idea.

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Taylor Larimore
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by Taylor Larimore » Mon Feb 18, 2013 2:01 pm

Hi Dan:

In answer to your question, I can only tell you why I exchanged our long held, Vanguard intermediate-term TIPS fund to the new short-term TIPS fund:

* 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.

* 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 is a large percentage of our portfolio. A smaller percentage, I would not bother.

* I would never open a brokerage account for one fund to save a 0.25% purchase fee. To my mind, Simplicity is much more important.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

fundseeker
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by fundseeker » Sat May 18, 2013 7:38 am

Taylor,

It sounds like you expect the same drop in bonds that others expect, and if so, why not just move to a money market fund or something with no risk? Also, what are your thoughts about moving money that is in VIPSX into this fund, Vanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX), which has similar duration but with, IMO, more upside potential? Thanks for your valuable input.

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G-Money
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by G-Money » Sat May 18, 2013 10:52 am

272 Sheep wrote:If Vanguard changed-out the intermediate infl-protected with short-term infl-protected in their retirement
asset-allocation accounts -maybe they know something we don't?

Carl W.

Don't count on it. Vanguard increased the stock allocation in its Target Retirement Funds just in time for the crash in 2008. Then it goosed up the international allocation just before Europe went in the tank.

If anything, Vanguard's changes with the Target funds have been a contra-indicator.
Don't assume I know what I'm talking about.

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Taylor Larimore
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Answer to question

Post by Taylor Larimore » Sat May 18, 2013 3:06 pm

fundseeker wrote:Taylor,

It sounds like you expect the same drop in bonds that others expect, and if so, why not just move to a money market fund or something with no risk? Also, what are your thoughts about moving money that is in VIPSX into this fund, Vanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX), which has similar duration but with, IMO, more upside potential? Thanks for your valuable input.

fundseeker:

I learned long-ago that it is futile to forecast stock and bond returns. Moving to a money market fund does not eliminate the risk of failing to meet our goal(s) (the BIG risk) because the money market fund has very low return.

In bonds the expected risk and expected return are priced into the bond. There is no free lunch except diversification (the primary reason I like Total Bond Market Index Fund).

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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artthomp
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by artthomp » Sat May 18, 2013 4:51 pm

Taylor Larimore wrote:Hi Dan:

In answer to your question, I can only tell you why I exchanged our long held, Vanguard intermediate-term TIPS fund to the new short-term TIPS fund:

* 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.

* 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 is a large percentage of our portfolio. A smaller percentage, I would not bother.

* I would never open a brokerage account for one fund to save a 0.25% purchase fee. To my mind, Simplicity is much more important.

Best wishes.
Taylor


Taylor,

Are you considering reallocating your fixed income portfolio to include the new International Bond Index Fund when it becomes available as Vanguard is planning in their fund-of-funds?
Art

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Taylor Larimore
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Adding an international bond fund?

Post by Taylor Larimore » Sat May 18, 2013 6:12 pm

artthomp wrote:
Taylor Larimore wrote:Hi Dan:

In answer to your question, I can only tell you why I exchanged our long held, Vanguard intermediate-term TIPS fund to the new short-term TIPS fund:

* 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.

* 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 is a large percentage of our portfolio. A smaller percentage, I would not bother.

* I would never open a brokerage account for one fund to save a 0.25% purchase fee. To my mind, Simplicity is much more important.

Best wishes.
Taylor

Taylor,

Are you considering reallocating your fixed income portfolio to include the new International Bond Index Fund when it becomes available as Vanguard is planning in their fund-of-funds?


I hold a large bond allocation of 50% Total Bond Market and 50% TIPS which has served us well. But yes, I am considering an International Bond Fund but I am far from making up my mind. I'll wait to read Vanguard's Announcement, the Prospectus, and read the opinion of Bogleheads who know more than I do about currency-hedged international bond funds.

If I had a small bond allocation I would not bother adding another bond fund. For most investors, I feel that a single low-cost, good-quality, short- or intermediate-term bond fund is all that is needed to provide safety and income in a portfolio.

The allure of adding more funds is always present. It is not easy to keep investing simple.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by baw703916 » Sun Jun 09, 2013 12:46 pm

Taylor Larimore wrote:Hi Dan:

In answer to your question, I can only tell you why I exchanged our long held, Vanguard intermediate-term TIPS fund to the new short-term TIPS fund:

* 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.

* 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 is a large percentage of our portfolio. A smaller percentage, I would not bother.

* I would never open a brokerage account for one fund to save a 0.25% purchase fee. To my mind, Simplicity is much more important.

Best wishes.
Taylor


Taylor,

I know you could never be accused of market timing, but your switch in TIPS funds seems to have worked out very well:

VIPSX (original TIPS fund): -4.62% YTD
VTAPX (short-term TIPS index): -1.08% YTD

Congratulations!

Brad
Most of my posts assume no behavioral errors.

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Taylor Larimore
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Good luck or smart timing ?

Post by Taylor Larimore » Sun Jun 09, 2013 1:15 pm

Taylor,

I know you could never be accused of market timing, but your switch in TIPS funds seems to have worked out very well:

VIPSX (original TIPS fund): -4.62% YTD
VTAPX (short-term TIPS index): -1.08% YTD

Congratulations!

Brad


Brad:

I try not to confuse "brains" with "good luck." :wink:

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by baw703916 » Sun Jun 09, 2013 1:37 pm

Taylor,

While the actual outcome is affected by luck, the following rationales definitely involve brains:

Taylor Larimore wrote:
* 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 is a large percentage of our portfolio. A smaller percentage, I would not bother.


Best wishes,
Brad
Most of my posts assume no behavioral errors.

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by artthomp » Sun Jun 09, 2013 1:59 pm

Vanguard has removed the .25% purchase fee. I converted from VAIPX to VTAPX earlier in the week after I verified that the purchase fee had been removed.

I feel the shorter term fund will protect about as much from unexpected higher inflation as the intermediate term fund will. Presently both funds show a very low return (SEC Yields of -0.69% VAIPX and -0.90% VTAPX). For example for a 12 month unexpected 3% inflation adjustment (2 adjustments) the yields would pretty much match up (2.31% VAIPX versus 2.1% VTAPX).
Last edited by artthomp on Sun Jun 09, 2013 8:51 pm, edited 1 time in total.
Art

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steve roy
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by steve roy » Sun Jun 09, 2013 2:04 pm

I've followed Taylor's lead with shortening up TIPS duration. But I've shortened the Steve Roy/Mrs. steve Roy portfolio's bond duration overall, and am not sorry. The wife and I have 72% of our assets in bonds

25% -- VG Short Term TIPS

10% -- VG Intermediate/Limited Term Tax Exempts

25% -- Intermediate bonds (Both VG Total Bond -- inside "Target Retirement Income" -- and Intermediate bond fund.)

30% -- VG Short Term Federal and VG Short Term Treasury

20% -- VG Short Term Investment Grade

As you can see, we are DI-VERS-IFIED. The Vanguard Robot keeps warning us that we are overweighted in Short Term Bonds. The hell with the robot.

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by Blues » Sun Jun 09, 2013 2:18 pm

steve roy wrote:I've followed Taylor's lead with shortening up TIPS duration. But I've shortened the Steve Roy/Mrs. steve Roy portfolio's bond duration overall, and am not sorry. The wife and I have 72% of our assets in bonds

25% -- VG Short Term TIPS

10% -- VG Intermediate/Limited Term Tax Exempts

25% -- Intermediate bonds (Both VG Total Bond -- inside "Target Retirement Income" -- and Intermediate bond fund.)

30% -- VG Short Term Federal and VG Short Term Treasury

20% -- VG Short Term Investment Grade

As you can see, we are DI-VERS-IFIED. The Vanguard Robot keeps warning us that we are overweighted in Short Term Bonds. The hell with the robot.


Unless I'm mistaken, that adds up to 110% of your fixed income investments...but then I just finished a vodka tonic that the missus talked me into. :beer

(We're similarly allocated overall at ~30/70...with roughly 28% of our fixed income in TBM.)
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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by steve roy » Sun Jun 09, 2013 4:47 pm

Blues wrote:
steve roy wrote:I've followed Taylor's lead with shortening up TIPS duration. But I've shortened the Steve Roy/Mrs. steve Roy portfolio's bond duration overall, and am not sorry. The wife and I have 72% of our assets in bonds

25% -- VG Short Term TIPS

10% -- VG Intermediate/Limited Term Tax Exempts

25% -- Intermediate bonds (Both VG Total Bond -- inside "Target Retirement Income" -- and Intermediate bond fund.)

30% -- VG Short Term Federal and VG Short Term Treasury

20% -- VG Short Term Investment Grade

As you can see, we are DI-VERS-IFIED. The Vanguard Robot keeps warning us that we are overweighted in Short Term Bonds. The hell with the robot.


Unless I'm mistaken, that adds up to 110% of your fixed income investments...but then I just finished a vodka tonic that the missus talked me into. :beer

(We're similarly allocated overall at ~30/70...with roughly 28% of our fixed income in TBM.)


Oops. I loused up with basic math. Make that "20% VG Short Term Federal and VG Short Term Treasury."

We're probably too spread around, but since everything is Admiral shares, I'm not worried about it.

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Re: Inflation protected, VAIPX vs VTAPX vs VTIP

Post by baw703916 » Sun Jun 09, 2013 4:55 pm

steve roy wrote:Oops. I loused up with basic math. Make that "20% VG Short Term Federal and VG Short Term Treasury."

We're probably too spread around, but since everything is Admiral shares, I'm not worried about it.


I figured that maybe your portfolio was giving 110%! :)
Most of my posts assume no behavioral errors.

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