Short versus long TIPs funds?

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Short versus long TIPs funds?

Post by artthomp » Thu Feb 07, 2013 9:19 am

In the discussion of adding international bonds to Vanguard Target Retirement Funds and Vanguard Life Strategy Funds an additional change was mentioned for the Target Retirement Funds.

Vanguard Target Retirement Funds will undergo a few additional changes. Vanguard Short-Term Inflation-Protected Securities Index Fund will replace Vanguard Inflation-Protected Securities Fund.

If an important consideration is to protect from an unexpected increase in interest rates, it appears to me that the 2.5 year duration for the Short-Term Inflation-Protected Securities Index versus the 8.3 year duration for the Inflation-Protected Securities Fund is a major consideration for anticipating possible unexpected rising interest rates. Does this make sense to anyone else?

If the normal consideration of protecting from an unexpected increase in inflation is the motive, I believe both funds offer similar inflation protection. Is this correct?

Another benefit of the short term fund is that it is an index fund thus avoiding manager risk.

The expense rations are similar: VTAPX has an ER of .10% while VAIPX has an ER of .11%. Since the short term fund is an index fund the minimum investment is $10,000 while the minimum investment in the inflation-protected fund is $50,000.

One drawback to the short term fund is a .25% purchase fee which I hope may be removed around the time the International Bond Index Fund becomes available and I reallocate to more closely match the Retirment Income Fund.

Since I'm almost 73 years old, I more or less copy the Retirement Income Fund allocations. The new Retirement Income Fund allocations according to the Wiki are:
Total Bond Index Fund 39.2%
Total Internation Bond Index Fund 14%
Short-Term Inflation-Protected Bond Index Fund 16.8%
Total Stock Index Fund (approximately) 20%
Total International Stock Index Fund (approximately) 10%
Last edited by artthomp on Thu Feb 07, 2013 4:33 pm, edited 1 time in total.

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Re: Should I consider replacing VAIPX with VTAPX?

Post by convert949 » Thu Feb 07, 2013 10:32 am

Hi artthomp,

I had started a similar thread on the "help with personal investments" part of the forum earlier this morning. Having been concerned about the extended duration of the current Intermediate Term Inflation Protected Fund VAIPX, I am interested in moving at least a portion of my current TIPS holdings to the Short Term VTAPX. It seems like the International Bond Fund has gotten much of the attention on the forum (s).

I am 63 and retired and keep an eye on the 2010 Target Retirement Fund as a good example of where I might want to be. I currently maintain about 2 years expenses in the Limited Term Tax Exempt in taxable with all other bonds in TBM and VAIPX. As mentioned in my other thread, the -0.5% penalty on the Short Term TIPS VTAPX seems like a pretty good deal for 6 years less in duration.

Best to all,


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Re: Should I consider replacing VAIPX with VTAPX?

Post by trailmk » Thu Feb 07, 2013 3:32 pm

I'm also very interested in this topic - replacing some or all of the older TIPs fund with the newer Short Term Tips fund.

Maybe if the thread title included the words Short v. Longer Term TIPs ( or something similar) more people would join the discussion. I'm not sure how many know that VAIPX and VTAPX are TIPs funds.


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Re: Should I consider replacing VAIPX with VTAPX?

Post by dbr » Thu Feb 07, 2013 3:43 pm

This is exactly one of the reason's TR and LS funds are a bad idea, the fact that Vanguard will change the composition of the fund and investors may miss the change. This has nothing to do with agreeing or disagreeing that the change is a good idea. It has to do with being able to invest in something one understands and stay the course.

PS I have no problem staying intermediate in TIPS in my portfolio, but a different portfolio for a different investor might be better off the other way around.

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