HSA investing- Is buying TIPS ETF good for safety?

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JaxFLbh
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Joined: Thu Jul 22, 2010 7:37 am

HSA investing- Is buying TIPS ETF good for safety?

Post by JaxFLbh »

I'd like to keep up with inflation or maybe make a percent or two on top of it in my HSA but for various reasons, I'd like to play it ultra safe. Does it make sense to buy the TIPS etf as opposed to sitting in cash?
livesoft
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by livesoft »

TIPS funds have been known to drop as much as 10% in value. That's probably not the kind of safety you want.
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Topic Author
JaxFLbh
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by JaxFLbh »

No, you are right about that. Thanks
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JaxFLbh
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by JaxFLbh »

The other thing I was thinking is maybe an income target retirement fund like VTINX
livesoft
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by livesoft »

I suggest while you are looking around for something that you simply plot or chart the "growth of" the investment over the past several years with the Morningstar "growth of" chart. Then you can decide for yourself if you can stomach the volatility (i.e. losses) that your choice has shown in the past.
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hsv_climber
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by hsv_climber »

You can either invest ultra safe or try to keep with inflation / beat it, but you can't do both with bond ETFs right now.
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by hsv_climber »

livesoft wrote:I suggest while you are looking around for something that you simply plot or chart the "growth of" the investment over the past several years with the Morningstar "growth of" chart. Then you can decide for yourself if you can stomach the volatility (i.e. losses) that your choice has shown in the past.
Make sure that "past several years" include 2007-2009.
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grabiner
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Re: HSA investing- Is buying TIPS ETF good for safety?

Post by grabiner »

If your HSA is part of your overall asset allocation, then it's often a good place to put your TIPS. Since TIPS track inflation, there is less risk that your HSA will be too large a part of your portfolio; if you put a risky investment in your HSA and it does well, you might have too much in your HSA for your medical costs and need to withdraw with a penalty. In addition, if you live in one of the states which taxes HSAs, TIPS are still exempt from state taxes.

There is still the tradeoff between risk and return. LTPZ, the long-term TIPS ETF, has the highest yield, but a very long duration; its TIPS will outperform inflation if you hold them to maturity, but the ride may be bumpy. TIP or TIPZ are intermediate-term TIPS ETFs, which currently have negative yields to maturity as compensation for the reduced risk; Vanguard's TIPS fund is similar.

If you are willing to take a bit more risk and your state doesn't tax HSAs, you might hold corporate bonds there, such as Vanguard's VCIT intermediate-term corporate ETF, or Vanguard's Intermediate-Term Investment-Grade Bond fund.
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