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Posted: Fri Oct 06, 2017 9:28 am
Any thoughts on building a position in VIPSX in a 401k over a 20 year period?
Posted: Fri Oct 06, 2017 9:36 am
I think your question is a bit too vague without additional information. For instance:
-What is your asset allocation?
-What other funds are available in your 401k?
-How close are you to retirement?
-Are you already investing in savings bonds?
Posted: Fri Oct 06, 2017 9:56 am
We're 95/5 stocks to bonds
MWTIX is the only other bond fund available in that 401k. We Index VTSAX and VTIAX for equities 60/40 respectively. Using a few other funds to lean towards small caps and value.
This is a fraction of 1% of our overall pie.
Posted: Fri Oct 06, 2017 10:05 am
My thought is that intermediate duration TIPS fund VIPSX/VAIPX (one should say what the fund is and not just ticker) is a very reasonable holding for part of one's fixed income. One could even argue that the opportunity to remove inflation risk from fixed income would justify holding nothing but TIPS in fixed income, but I suspect there is some discomfort with putting lots of one's assets in a very narrow corner of the market. These bonds are still volatile in proportion to their duration, as are all bonds, (which is with respect to real rather than nominal rates) but I think intermediate is a happy medium in fixed income.
TIPS are out of favor on this forum these days with those who can't stand the low yields available in fixed income and especially in Treasuries. Be sure not to confuse the published real yield with nominal yields of other bonds. There is also an abiding opinion that inflation is no longer a risk, but I think that is short sighted.
As with bonds in general it is probably best to keep TIPS in tax deferred accounts. Because Treasuries are exempt from state income taxes they are in general slightly more tax efficient than nominal bonds, but note that in taxable accounts the inflation increment is taxable each year. That is on a par with nominal bonds, all of the nominal yield also being taxed in a year.
Of course, at the miniscule fractions you are talking about it makes absolutely no difference what you hold. It is not a question of building up as in tax deferred accounts you can reallocate at will.
Posted: Fri Oct 06, 2017 10:10 am
Thank You for your insight, very helpful, and I think I'll hold off on buying VIPSX in my 401k!
Posted: Fri Oct 06, 2017 10:22 am
dbr wrote: ↑
Fri Oct 06, 2017 10:05 am
There is also an abiding opinion that inflation is no longer a risk, but I think that is short sighted.
Agreed. I would bet economic cycles occur when least expected or predicted.
To the OP, the best hedge for inflation over the long term (20+ years) is just having more in equities. Over time the cost of inflation is passed onto the consumer and the return on equities are usually much higher then the length of time unexpected inflation occurs.