Is it time to give-up on TIPS?

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Re: Is it time to give-up on TIPS?

Post by Artsdoctor » Wed Mar 25, 2015 10:42 pm

^ dbr, I agree with you. But if someone "gave up" on TIPS this year, they would've missed out on unexpectedly decent returns, if that's what they're interested in. These yields are ridiculously low and it seems that the real yield of a 30-year bond might approach 0% before you know it.

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Re: Is it time to give-up on TIPS?

Post by Flashes1 » Thu Mar 26, 2015 7:01 am

OP here: thanks for letting me vent---I need to do that sometimes. Thanks to the board's feeback, I stayed the course regarding TIPS. One post in particular resonated with me----paraphrasing here but it went "should you continue to have the same concerns that got you to buy TIPS in the first place, then do nothing."

I continue to be concerned of inflation risk in the next 5-10 years; therefore, TIPS continue to be an appropriate investment for me. Just wish I could time it a little better. :D

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Re: Is it time to give-up on TIPS?

Post by Seattlenative » Thu Mar 26, 2015 8:12 am

Flashes1 wrote:OP here: thanks for letting me vent---I need to do that sometimes. Thanks to the board's feeback, I stayed the course regarding TIPS. One post in particular resonated with me----paraphrasing here but it went "should you continue to have the same concerns that got you to buy TIPS in the first place, then do nothing."

I continue to be concerned of inflation risk in the next 5-10 years; therefore, TIPS continue to be an appropriate investment for me. Just wish I could time it a little better. :D
I have come to the same conclusion. Inflation has a tendency to rear its ugly head in an economic system unexpectedly and quickly. Almost one-fourth of my IRA fixed-income allocation is held in two TIPS ETFs: SCHP (in the Schwab accounts) and VTIP (at Wellstrade). Certainly, the daily price fluctuations are more discernible than for aggregate-bond ETFs.

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Re: Is it time to give-up on TIPS?

Post by abuss368 » Thu Mar 26, 2015 10:54 pm

Doc wrote:
abuss368 wrote:I am still on the fence with TIPS. I removed them many years ago and simplified our bond holdings to Total Bond Index and Intermediate Tax Exempt and this has worked very well thus far.
Is "many years" before or after Lehman? :D
Not sure Doc. I would have to check but I did not remove them because of Lehman. Do you own the TIPS fund?
Last edited by abuss368 on Fri Mar 27, 2015 7:35 pm, edited 1 time in total.
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Re: Is it time to give-up on TIPS?

Post by Doc » Fri Mar 27, 2015 8:22 am

abuss368 wrote:No sure Doc. I would have to check but I did not remove them because of Lehman. Do you own the TIPS fund?
I use a 0-10 ladder. It is designed as a liability matching portfolio for retirement in case the market tanks and stays tanked for a significant length of time. If the market is OK in a given year I roll the maturing note. If the market is down while I may not have enough to rebalance at least I won't have to deplete equity capital to meet living expenses in a down market. Now that there is a 1-10 fund/etf available that may be a viable alternative.

Long term TIPS in this environment don't make any sense to me. See Grok's 30 year TIPS thread(s) for other opinions.
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Tue Mar 31, 2015 5:19 pm

Hi Doc,

Thank you for explaining.

Best.
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Re: Is it time to give-up on TIPS?

Post by ps56k » Tue Mar 31, 2015 5:24 pm

Doc wrote:I use a 0-10 ladder..... Now that there is a 1-10 fund/etf available that may be a viable alternative.
What does your 0-10 ladder look like ?
and what is the 1-10 fund/etf you mention ?

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Re: Is it time to give-up on TIPS?

Post by abuss368 » Tue Mar 31, 2015 5:32 pm

For anyone entertaining removing TIPS from a portfolio: Have you considered the Total International Bond Index fund as a replacement?
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Re: Is it time to give-up on TIPS?

Post by 500Kaiser » Tue Mar 31, 2015 8:52 pm

ps56k wrote:
Doc wrote:I use a 0-10 ladder..... Now that there is a 1-10 fund/etf available that may be a viable alternative.
and what is the 1-10 fund/etf you mention ?
I am interested in knowing what this fund/etf is as well. If somebody is able to provide a pointer, I would appreciate it.
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Re: Is it time to give-up on TIPS?

Post by #Cruncher » Tue Mar 31, 2015 9:00 pm

500Kaiser wrote:
ps56k wrote:
Doc wrote:I use a 0-10 ladder..... Now that there is a 1-10 fund/etf available that may be a viable alternative.
and what is the 1-10 fund/etf you mention ?
I am interested in knowing what this fund/etf is as well. If somebody is able to provide a pointer, I would appreciate it.
I assume that Doc was referring to the SPDR® Barclays 1-10 Year TIPS ETF, symbol TIPX, launched in May 2013. You can see the yield and duration (as of 3/20/2015) of its index in relation to the 0-5, 1-5, 1+, and 15+ indexes in the post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.

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Re: Is it time to give-up on TIPS?

Post by Doc » Wed Apr 01, 2015 7:28 am

#Cruncher wrote:I assume that Doc was referring to the SPDR® Barclays 1-10 Year TIPS ETF, symbol TIPX
Actually I was getting my info from the thread #Cruncher referenced. I actually didn't know which ETF it was. :D
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Re: Is it time to give-up on TIPS?

Post by 500Kaiser » Wed Apr 01, 2015 3:20 pm

#Cruncher wrote:
500Kaiser wrote:
ps56k wrote:
Doc wrote:I use a 0-10 ladder..... Now that there is a 1-10 fund/etf available that may be a viable alternative.
and what is the 1-10 fund/etf you mention ?
I am interested in knowing what this fund/etf is as well. If somebody is able to provide a pointer, I would appreciate it.
I assume that Doc was referring to the SPDR® Barclays 1-10 Year TIPS ETF, symbol TIPX, launched in May 2013. You can see the yield and duration (as of 3/20/2015) of its index in relation to the 0-5, 1-5, 1+, and 15+ indexes in the post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.
Thanks.
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Re: Is it time to give-up on TIPS?

Post by RetiredinKaty » Wed Apr 01, 2015 7:48 pm

Is it time to give up on the 3 fund portfolio?

This question is just rhetorical, but…

Vanguard launched their intermediate TIPS fund in June, 2000. (I don’t trust simulated TIPS for earlier periods.) Consider the fund performance for the years 2001 through 2014, as estimated by Portfolio Visualzer: CAGR = 5.79%, Std Dev = 6.68%. Call this portfolio A.

Now consider portfolio B for the same period: 30% Total US Stock, 20% Total International Stock, 50% Total Bond. Performance for 2001 through 2014: CAGR = 5.91%, Std Dev = 9.84%. Call this portfolio B.

I did not cherry pick portfolio B. My retirement portfolio is 1/3 portfolio A and 2/3 portfolio B; CAGR = 6.01%, Std Dev = 7.01%. I am not giving up on TIPS.

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Re: Is it time to give-up on TIPS?

Post by abuss368 » Wed Apr 01, 2015 9:24 pm

I would like to see the Intermediate TIPS fund transition to an index fund with monthly dividend income. Does iShares not offer this?
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Re: Is it time to give-up on TIPS?

Post by Runalong » Tue Jun 02, 2015 9:49 am

I'm actually thinking of increasing my allocation for TIPS and for the very un-Boglehead reason that I AM trying to predict the future.

It's hard to be a contrarian nowadays when contrarianism seems to have become mainstream. Contrarianism has such a solid track record (over the long haul) that as soon as a lot of voices say buy X or sell Y, an awful lot do the opposite. I think an awful lot of the weirdness in the markets as of late has to do with the fact that investors want to be contrarians but there are so many contrarians that they can't figure out which way to bet against. Which, if true, is a good argument for the Boglehead approach.

OTOH, there DOES seem to be a strong consensus (not unanimous, it never is) that inflation is going to remain low. That affects current TIPS prices and, if wrong, as consensuses (consensi?) usually are, provides my rationale for believing that it is more likely than not that inflation will in fact be higher than expected and thus, now is a good time to increase my TIPS allocation.

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Re: Is it time to give-up on TIPS?

Post by dodecahedron » Tue Jun 02, 2015 10:17 am

I am also not giving up on TIPS. Yes, negative real yields at the moment are kind of depressing, but it is what it is, and if inflation does re-materialize, the real yields on existing nominal bonds will truly suck.

However, I am thinking about relocating my TIPS fund. Following the conventional wisdom about tax efficient asset locations at the time, I had originally put my TIPS in my Roth. Now I am seriously contemplating putting at least some of my TIPS in my taxable account and replacing it with equities.

Here is my reasoning:

1) tiny current real yields and low inflation currently means there is little nominal yield that will get taxed at ordinary income rates (and at least what tiny nominal yield there is gets preferential state income tax treatment)

2) if inflation eventually materializes and my TIPS holding appreciates due to higher inflation, I can tax-gain-harvest and pay tax at LTCG rates (assuming it's been at least a year) and relocate TIPS back to my Roth at that time

3) if current deflationary outlook continues and my holdings continue to depreciate, I can TLH the TIPS fund in taxable (and move it into some other reasonably good substitute but not identical fund in taxable.) Rinse and repeat.

Assuming I committed to TIPS, any reason not to do this? Note that my TIPS holding thus far has mostly been Vanguard's short term TIPS fund in my Roth but I think I would go with their intermediate term fund in taxable (for better TGH, TLH opportunities).

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Re: Is it time to give-up on TIPS?

Post by Doc » Tue Jun 02, 2015 10:32 am

dodecahedron wrote:2) if inflation eventually materializes and my TIPS holding appreciates due to higher inflation, I can tax-gain-harvest and pay tax at LTCG rates (assuming it's been at least a year) and relocate TIPS back to my Roth at that time
It doesn't work that way. The inflation component of the yield is treated as Original Issue Discount (OID) and is taxed annually at
ordinary rates. The basis is increased accordingly so there is no capital gains at maturity.

Despite this, at current low interest rates many will find that Treasury issues are not that tax inefficient especially if you are in a high income tax state. You can use a nominal Treasury with similar maturity to get a handle on the likely tax bill.
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Re: Is it time to give-up on TIPS?

Post by dodecahedron » Tue Jun 02, 2015 10:46 am

Doc wrote:
dodecahedron wrote:2) if inflation eventually materializes and my TIPS holding appreciates due to higher inflation, I can tax-gain-harvest and pay tax at LTCG rates (assuming it's been at least a year) and relocate TIPS back to my Roth at that time
It doesn't work that way. The inflation component of the yield is treated as Original Issue Discount (OID) and is taxed annually at
ordinary rates. The basis is increased accordingly so there is no capital gains at maturity.
I guess I wasn't clear enough. I wasn't talking about the gain from the inflation component of the yield itself (I do understand that's taxed as OID) but the gain from selling if and when inflationary expectations gets people excited about buying TIPS again again and they start bidding up the price of TIPS in anticipation.

It seems like it should be possible to capture SOME of the increase due to inflation heating up again in a tax-favored form at that point?

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Re: Is it time to give-up on TIPS?

Post by Doc » Tue Jun 02, 2015 11:28 am

dodecahedron wrote:It seems like it should be possible to capture SOME of the increase due to inflation heating up again in a tax-favored form at that point?
Possible. Inflation heats up. People bid up the price of TIPS. You harvest a capital gain and reinvest the the proceeds from the sale into another TIPS. (?) So you effectively have a tax arbitrage situation on the market premium as opposed to the OID component. It works but isn't worth that much.

I actually did something like this a few years ago. the price increase was due to the generally dropping nominal rates. (No need to decide how much was inflation premium.) Out of three issues only two made sense. The tax gain on the third was eaten up by the spread.
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Re: Is it time to give-up on TIPS?

Post by Johno » Tue Jun 02, 2015 12:23 pm

dodecahedron wrote: I guess I wasn't clear enough. I wasn't talking about the gain from the inflation component of the yield itself (I do understand that's taxed as OID) but the gain from selling if and when inflationary expectations gets people excited about buying TIPS again again and they start bidding up the price of TIPS in anticipation.

It seems like it should be possible to capture SOME of the increase due to inflation heating up again in a tax-favored form at that point?
The tax thinking seems correct given the assumption that TIPS prices would increase when higher inflation was anticipated. However the latter assumption is IMO highly doubtful, at least from where we're starting now. The price of TIPS is an expression of the real yield, or vice versa. The real yield is at least highly influenced by investors' expectation of the realization of real short term interest rates over the life of the particular TIPS issue. Now short term real rates are negative and expectations of them as seen in TIPS real yields also negative or low for a long time in anticipation of an economy facing mainly deflationary threats. If perception changed back to 'normal' of positive real short rates used by the Fed to contain inflation, TIPS yields would go up, prices down. And in fact TIPS prices have correlated pretty closely with nominal bond prices in the off again/on again anticipation of a more normal interest rate environment, or not, in the last few years.

Your scenario might be more likely if we already had fairly high short term real rates and inflation, and the market began to perceive that the Fed wasn't concerned about high inflation and wouldn't apply the brakes any further with higher short rates even if inflation continued to rise. For example it seems possible that if TIPS had existed in the 1970's they might have traded up on the market's perception that the Miller Fed was complacent about inflation during that inflationary surge. But starting with a Fed now pursuing ultra-easy money policy against predominantly deflationary threats, higher inflation would almost surely cause a sell off in TIPS IMO.

This is the best argument against TIPS (though I still have a few % in case of a very sudden and extreme surge in inflation). If we get a gradual re-acceleration of inflation, TIPS will probably become cheaper once that's apparent, so just buy them then. If we don't get that acceleration, nominal instruments are fine. Direct (ie puttable) 5yr CD's are the relative sweet spot now in (the pretty grim landscape for investors of) safe fixed income IMO.

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Re: Is it time to give-up on TIPS?

Post by Doc » Tue Jun 02, 2015 12:34 pm

Johno wrote:Direct (ie puttable) 5yr CD's are the relative sweet spot now in (the pretty grim landscape for investors of) safe fixed income IMO.
You don't get the price "boost" with CD's as you do with Treasuries in flight to quality situations. On the other hand in the last flight TIPS didn't do so well either.

I let my TIPS ladder disintegrate itself after 2008 and have just started to rebuild it in the last year but am also including some nominal Treasuries in the mix. I'm not in a hurry. I've been buying double rungs of fives every April and mixing in some nominals that mature in the gaps. The duration of the ladder is still only 4.5 years despite having one 2026 rung. (#cruncher's method.)
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Thu Jun 04, 2015 9:01 am

Doc wrote:
dodecahedron wrote:2) if inflation eventually materializes and my TIPS holding appreciates due to higher inflation, I can tax-gain-harvest and pay tax at LTCG rates (assuming it's been at least a year) and relocate TIPS back to my Roth at that time
It doesn't work that way. The inflation component of the yield is treated as Original Issue Discount (OID) and is taxed annually at
ordinary rates. The basis is increased accordingly so there is no capital gains at maturity.

Despite this, at current low interest rates many will find that Treasury issues are not that tax inefficient especially if you are in a high income tax state. You can use a nominal Treasury with similar maturity to get a handle on the likely tax bill.
Hi Doc,

Thank you for explaining that. Excellent post.
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Thu Jun 04, 2015 9:04 am

Did anyone see the interview on Vanguard's website a couple of months ago with the fund manager for the Vanguard Intermediate Term TIPS Fund? During the interview it was noted that the fund is holding nominal Treasuries and Cash and will continue to build these positions as needed considering the environment.
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Thu Jun 04, 2015 9:05 am

I just find it interesting that Vanguard removed the Intermediate TIPS fund from all Target fund offerings. The last couple Target funds, near the retirement year, include the Short Term TIPS fund. I still do not understand the need or position of this fund in a well balanced portfolio. Vanguard could probably remove this fund and simply use Total Bond and Total International Bond and thus increase yield and income.
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Re: Is it time to give-up on TIPS?

Post by Doc » Thu Jun 04, 2015 9:32 am

abuss368 wrote:Did anyone see the interview on Vanguard's website a couple of months ago with the fund manager for the Vanguard Intermediate Term TIPS Fund? During the interview it was noted that the fund is holding nominal Treasuries and Cash and will continue to build these positions as needed considering the environment.

I can't find it. Can you provide a link?

From Morningstar last December:
Gemma Wright-Casparius employs a straightforward approach that sticks strictly to Treasury Inflation-Protected Securities, unlike some peers in the inflation-protected bond Morningstar Category that regularly employ other instruments like mortgage-backed securities, emerging-markets debt, or even corporate bonds.
But M* has nominals at 9% as of 3/1/15.
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Thu Jun 04, 2015 9:37 am

Doc wrote:
abuss368 wrote:Did anyone see the interview on Vanguard's website a couple of months ago with the fund manager for the Vanguard Intermediate Term TIPS Fund? During the interview it was noted that the fund is holding nominal Treasuries and Cash and will continue to build these positions as needed considering the environment.

I can't find it. Can you provide a link?

From Morningstar last December:
Gemma Wright-Casparius employs a straightforward approach that sticks strictly to Treasury Inflation-Protected Securities, unlike some peers in the inflation-protected bond Morningstar Category that regularly employ other instruments like mortgage-backed securities, emerging-markets debt, or even corporate bonds.
But M* has nominals at 9% as of 3/1/15.
Hi Doc,

Here is the link: Read this interview and let me know your thoughts.

https://personal.vanguard.com/us/insigh ... ion-032015
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Re: Is it time to give-up on TIPS?

Post by Doc » Thu Jun 04, 2015 10:22 am

@abuss368
Gemma Wright-Casparius wrote:The question is, when the Fed acts and rates are so low, will the financial system be under some stress? I think TIPS will be vulnerable then, as they were during the taper tantrum. When the Fed pushes rates up, TIPS will probably once again lead the sell-off.
This quote from the interview kind of sums up my position. I'm in the process of rebuilding my ten year TIPS ladder but am staying short with TIPS and filling some of the rungs with nominal Treasuries. Right now I am much less concerned with unexpected inflation as the article suggests and am more concerned with an equity market correction and don't want to be stuck with too many TIPS that do not respond like nominal Treasuries like they did in '08. Currently we have 5 of the rungs in TIPS but 4 of the 5 have a maturity of only 4 and 5 years. (Before someone asks. I have two double rungs. :D )
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Re: Is it time to give-up on TIPS?

Post by Angst » Thu Jun 04, 2015 6:27 pm

Doc wrote:
Gemma Wright-Casparius wrote:The question is, when the Fed acts and rates are so low, will the financial system be under some stress? I think TIPS will be vulnerable then, as they were during the taper tantrum. When the Fed pushes rates up, TIPS will probably once again lead the sell-off.
This quote from the interview kind of sums up my position. I'm in the process of rebuilding my ten year TIPS ladder but am staying short with TIPS and filling some of the rungs with nominal Treasuries. Right now I am much less concerned with unexpected inflation as the article suggests and am more concerned with an equity market correction and don't want to be stuck with too many TIPS that do not respond like nominal Treasuries like they did in '08. Currently we have 5 of the rungs in TIPS but 4 of the 5 have a maturity of only 4 and 5 years. (Before someone asks. I have two double rungs. :D )
If things go the "right" way with a taper tantrum II, do you think maybe the Fed will end up providing you with an opportunity for converting those nominal rungs to TIPS?

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Re: Is it time to give-up on TIPS?

Post by Leif » Thu Jun 04, 2015 7:33 pm

I did sell my Vanguard mutual fund TIPS and bought the Vanguard ST TIPS. I still want inflation protection, but I want to avoid the high volatility of the intermediate term TIPS.

I'm holding on to my TIPS individual bonds. However, the real return rate is so low I've not bought new bonds. I would like to keep about 25% of my bonds in TIPS as I near retirement.

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Re: Is it time to give-up on TIPS?

Post by columbia » Thu Jun 04, 2015 9:22 pm

I haven't read through this, but TIPS deliver what one expects. That might not be want you want (now), however.

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Re: Is it time to give-up on TIPS?

Post by Doc » Fri Jun 05, 2015 8:06 am

Angst wrote:If things go the "right" way with a taper tantrum II, do you think maybe the Fed will end up providing you with an opportunity for converting those nominal rungs to TIPS?
I don't understand the question. What does the Fed have to do with converting nominals to TIPS? I use a broker for that. It takes me about a minute to place the orders and they fill in the time it takes me to find and click on the order status button.

It's not a taper tantrum that I worry about but rather a Lehmen flight to quality situation.
columbia wrote:I haven't read through this, but TIPS deliver what one expects. That might not be want you want (now), however.
But nobody expected the TIPS reaction to Lehman or the taper tantrum either. In both cases TIPS and nominals reacted in opposite ways to non-inflation related events. That is not expected behavior.
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Fri Jun 05, 2015 9:15 am

TIPS are a complex security. I understand the theory. The challenge is placing TIPS in a taxable account. In the present environment of low interest rates, the tax impact may be minimal. In addition, there are state and local tax benefits. However, I read articles where the inflation adjustment is lower as a result of the tax impact.
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Re: Is it time to give-up on TIPS?

Post by Dulocracy » Fri Jun 05, 2015 4:30 pm

If I was not using a "reverse bond" strategy of paying the amount I should be paying in bonds on the mortgage, I would certainly be purchasing TIPS right now as 50% of my bond allocation.
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Re: Is it time to give-up on TIPS?

Post by Angst » Sat Jun 06, 2015 4:52 am

Doc wrote:
Angst wrote:If things go the "right" way with a taper tantrum II, do you think maybe the Fed will end up providing you with an opportunity for converting those nominal rungs to TIPS?
I don't understand the question. What does the Fed have to do with converting nominals to TIPS? I use a broker for that. It takes me about a minute to place the orders and they fill in the time it takes me to find and click on the order status button.

It's not a taper tantrum that I worry about but rather a Lehmen flight to quality situation.
columbia wrote:I haven't read through this, but TIPS deliver what one expects. That might not be want you want (now), however.
But nobody expected the TIPS reaction to Lehman or the taper tantrum either. In both cases TIPS and nominals reacted in opposite ways to non-inflation related events. That is not expected behavior.
It's that Lehman-like phenomena I'm alluding to. As you said in an earlier post "During that period TIPS prices tanked while nominal Treasury prices soared." This could be an opportunity to convert [sell] an appreciated nominal rung in your ladder and purchase TIPS on sale. I had the impression you held some nominals in lieu of available TIPS. Of course this wouldn't help if there were no TIPS available for those rungs.

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Re: Is it time to give-up on TIPS?

Post by Doc » Sat Jun 06, 2015 8:47 am

Angst wrote:It's that Lehman-like phenomena I'm alluding to. As you said in an earlier post "During that period TIPS prices tanked while nominal Treasury prices soared." This could be an opportunity to convert [sell] an appreciated nominal rung in your ladder and purchase TIPS on sale. I had the impression you held some nominals in lieu of available TIPS. Of course this wouldn't help if there were no TIPS available for those rungs.
I used all my nominal Treasuries to rebalance into equities. There was nothing left over to buy TIPS. (I did manage to scrape enough together in 2009 to buy one long rung.)

What you suggest might work in a low equity portfolio but if I was in that situation I would probably be buying into groks 30 year TIPS thread which has been ongoing for almost thirty years IIRC. :D
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Re: Is it time to give-up on TIPS?

Post by Angst » Sat Jun 06, 2015 5:55 pm

Predicatable, consistent, stable, reliable... even sort of comforting, like the seasons. Sounds like a good, safe investment to me! :)

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Re: Is it time to give-up on TIPS?

Post by watchnerd » Sat Jun 06, 2015 8:29 pm

nobsinvestor wrote:Why do Bogleheads love TIPS so much? I don't get it. The fed tries its best to control inflation (is it not their mandate?) and we haven't seen much unexpected inflation in decades.

Why not just hold Total Bond Market or Intermediate-Term Munis? Won't those, over the long run, keep up with inflation anyways? I don't get the obsession with TIPS. I blame David Swensen and his book :D
I'm with you...I'm still in the accumulation phase and TIPS don't have a place in my portfolio, in part because the track record of TIPS as a hedge against stock market declines is not one that is decades-long and well-studied.

Also, it's one more variable I have to mentally model in my port. It's enough for me to have my bonds correlated with interest-rate risk. But then to have another part of my bonds correlated with CPI (which is always a trailing indicator, and one that gets revised, too..) --- hurrrr, forget it.
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Re: Is it time to give-up on TIPS?

Post by watchnerd » Sat Jun 06, 2015 9:02 pm

abuss368 wrote:For anyone entertaining removing TIPS from a portfolio: Have you considered the Total International Bond Index fund as a replacement?
That sees like a pretty apples vs oranges comparison.

Are you comparing the two because the Vanguard Target Retirement funds now have Total International Bond in them?
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Re: Is it time to give-up on TIPS?

Post by abuss368 » Mon Jun 27, 2016 10:59 pm

TIPS are very hard to invest in these days. Almost no yield.
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Re: Is it time to give-up on TIPS?

Post by patrick » Mon Jun 27, 2016 11:30 pm

abuss368 wrote:TIPS are very hard to invest in these days. Almost no yield.
They do have almost no real yield but do at least have the inflation adjustments. Nominal bond yields aren't much either, and may well be negative after adjusting for inflation.

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Re: Is it time to give-up on TIPS?

Post by dbr » Tue Jun 28, 2016 8:54 am

abuss368 wrote:TIPS are very hard to invest in these days. Almost no yield.
At 10 years about 0.3% real plus about 1.0% inflation. Vanguard intermediate Treasury yields 1.09% now, so roughly the ballpark is there. That is almost no yield but it has nothing to do with TIPS per se but rather with altogether low interest rates for any fixed income investment.

It could be that the real problem with this sort of fixed income is the absence of savings accounts* CDs,muni, agency, or corporate TIPS. There also are no equities that I know of that are somehow priced and pay dividends in real dollars.

*There are I bonds, also offering almost no yield right now, but they do function as savings instruments in small quantities.

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Re: Is it time to give-up on TIPS?

Post by soboggled » Tue Jun 28, 2016 10:26 am

abuss368 wrote:TIPS are very hard to invest in these days. Almost no yield.
The same could be said for nominal Treasuries and most any other highly rated fixed income instrument.
You get what you pay for, and when you buy Treasuries you are buying safety. TIPS add inflation protection. This becomes more important as you age and near retirement, when you don't have wages that tend to increase with inflation.
Long term TIPs to me seem like a bargain compared to nominal Treasuries, especially if bought at auction: I believe the 30 year TIPs are yielding about .8% compared to 2.3% nominal. So if inflation averages more than 1.5% over the next 30 years, TIPS win. Who can predict 30 years into the future? Worse case, you just keep up with inflation. Viewed that way, not bad.
At shorter maturities, say 10 years, the spread is similar. You can squeeze out another .5% or so if you go with insured 10 year CDs, but they are a bit less safe and do not have favored tax treatment that Treasuries do in taxable portfolios in states with an income tax.
For the part of your portfolio where safety or capital preservation is the primary criterion, I would favor buying a mix of 10 year CDs and the longest term TIPS you feel comfortable with. There is little need for diversification when buying these issues, so get them at auction, not in a fund, where expenses eat into the low yields, if you don't mind a little extra work.
Just my opinion of course.

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Re: Is it time to give-up on TIPS?

Post by soboggled » Tue Jun 28, 2016 10:42 am

nisiprius wrote:
thx1138 wrote:...One very good hedge against inflation is to have a fixed rate nominal debt. Debtors love inflation. So to be clear that means a fixed rate mortgage is a good inflation hedge...
Which still is missing the point, because you are still in the world where inflation matters to you and you win or lose depending on what inflation does. Fixed rate nominal debt sucks if you have DEflation. My parents knew all about that--my dad's mom had thoughtfully bought her son an "endowment policy," some kind of mixed life-insurance-and-savings vehicle, and handed it over to him to pay the premiums on when he turned 21. So he (and my mom) paid the premiums all through the Great Depression in deflated dollars, only to have it mature in the early 1950s after one of the worst inflationary periods in U.S. history.

The benefit of TIPS and/or I bonds is that they isolate you from uncertainty about inflation, either way.
And I would argue that the best time to buy long-term TIPS is when inflation is low, because the yield spread vs. nominals is likely to be more favorable, i.e., the market will tend to underestimate future long-term inflation during periods of low inflation.
In any case, you shouldn't be buying Treasuries for that part of your portfolio that doesn't have safety as the primary criterion.

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Re: Is it time to give-up on TIPS?

Post by abuss368 » Tue Jun 28, 2016 10:23 pm

soboggled wrote:
nisiprius wrote:
thx1138 wrote:...One very good hedge against inflation is to have a fixed rate nominal debt. Debtors love inflation. So to be clear that means a fixed rate mortgage is a good inflation hedge...
Which still is missing the point, because you are still in the world where inflation matters to you and you win or lose depending on what inflation does. Fixed rate nominal debt sucks if you have DEflation. My parents knew all about that--my dad's mom had thoughtfully bought her son an "endowment policy," some kind of mixed life-insurance-and-savings vehicle, and handed it over to him to pay the premiums on when he turned 21. So he (and my mom) paid the premiums all through the Great Depression in deflated dollars, only to have it mature in the early 1950s after one of the worst inflationary periods in U.S. history.

The benefit of TIPS and/or I bonds is that they isolate you from uncertainty about inflation, either way.
And I would argue that the best time to buy long-term TIPS is when inflation is low, because the yield spread vs. nominals is likely to be more favorable, i.e., the market will tend to underestimate future long-term inflation during periods of low inflation.
In any case, you shouldn't be buying Treasuries for that part of your portfolio that doesn't have safety as the primary criterion.
Do you hold TIPS in a taxable account?
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Re: Is it time to give-up on TIPS?

Post by soboggled » Wed Jun 29, 2016 10:17 am

TIPS in tax-deferred, Treasuries in taxable (high state income taxes).
In retirement, substantially lowered equity allocation.
Bought 10-30 year TIPS at auction when the real rates were better (about 2% average).
Hold about 35% of fixed income allocation in TIPS, 25% in Treasury funds, 40% mostly high grade munis and corporate funds.
I don't think anyone should consider TIPS until about 5 years before retirement when inflation protection becomes important.
Keeping the TIPS until maturity. I really haven't thought what I would do about TIPS if I had to buy today.

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Re: Is it time to give-up on TIPS?

Post by dbr » Wed Jun 29, 2016 10:22 am

soboggled wrote:TIPS in tax-deferred, Treasuries in taxable (high state income taxes).
TIPS are Treasuries and exempt from state income taxes. That does not mean TIPS should be in taxable accounts rather than tax-deferred but it does mean you imply some sort of distinction that does not appear to exist.

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Re: Is it time to give-up on TIPS?

Post by soboggled » Wed Jun 29, 2016 10:24 am

dbr wrote:
soboggled wrote:TIPS in tax-deferred, Treasuries in taxable (high state income taxes).
TIPS are Treasuries and exempt from state income taxes. That does not mean TIPS should be in taxable accounts rather than tax-deferred but it does mean you imply some sort of distinction that does not appear to exist.
I know exactly what they are, but didn't want to deal with any tax complexities and wanted to avoid possible negative cash flow.
Pros and cons:
https://tipswatch.com/2013/03/28/treasu ... -1099-oid/

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Re: Is it time to give-up on TIPS?

Post by Doc » Wed Jun 29, 2016 10:39 am

soboggled wrote:I know exactly what they are, but didn't want to deal with any tax complexities and wanted to avoid possible negative cash flow.
As of Jan 1 of this year the brokers are required to handle the tax complexities for us.

You would have to have a huge TIPS allocation to make any possible negative cash flow a problem. (I think if you have a TIPS fund the accrued OID is paid out in the distribution. Just don't reinvest dividends.)
tfb wrote:The fund or ETF will do the math for you and distribute the necessary amount to you, together with interest. You don't know or care how much of the distribution is interest and how much is OID. To you, a TIPS fund or ETF behaves just like any other bond fund. If you reinvest distributions, you still pay taxes on the distributions.

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Re: Is it time to give-up on TIPS?

Post by dbr » Wed Jun 29, 2016 10:41 am

soboggled wrote:
dbr wrote:
soboggled wrote:TIPS in tax-deferred, Treasuries in taxable (high state income taxes).
TIPS are Treasuries and exempt from state income taxes. That does not mean TIPS should be in taxable accounts rather than tax-deferred but it does mean you imply some sort of distinction that does not appear to exist.
I know exactly what they are, but didn't want to deal with any tax complexities and wanted to avoid possible negative cash flow.
https://tipswatch.com/2013/03/28/treasu ... -1099-oid/
The OID is a point, but one does not know when reading on the forum what the take-away might be from one reader or poster to another about why something is being done. There are all too many postings where people state that TIPS are a "highly tax inefficient" investment, and that is just wrong. There is also much misstatement about "phantom" income, among other nuances about TIPS as well as confusion between owning individual TIPS and owning TIPS funds and the various differences that might exist between those and individual Treasuries and Treasury bond funds. That doesn't even mention the common confusion of mixing up real and nominal interest rates.

So, I apologize, but I hope you can see where that comment came from.

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Re: Is it time to give-up on TIPS?

Post by soboggled » Wed Jun 29, 2016 10:45 am

dbr wrote:
soboggled wrote:
dbr wrote:
soboggled wrote:TIPS in tax-deferred, Treasuries in taxable (high state income taxes).
TIPS are Treasuries and exempt from state income taxes. That does not mean TIPS should be in taxable accounts rather than tax-deferred but it does mean you imply some sort of distinction that does not appear to exist.
I know exactly what they are, but didn't want to deal with any tax complexities and wanted to avoid possible negative cash flow.
https://tipswatch.com/2013/03/28/treasu ... -1099-oid/
The OID is a point, but one does not know when reading on the forum what the take-away might be from one reader or poster to another about why something is being done. There are all too many postings where people state that TIPS are a "highly tax inefficient" investment, and that is just wrong. There is also much misstatement about "phantom" income, among other nuances about TIPS as well as confusion between owning individual TIPS and owning TIPS funds and the various differences that might exist between those and individual Treasuries and Treasury bond funds. That doesn't even mention the common confusion of mixing up real and nominal interest rates.

So, I apologize, but I hope you can see where that comment came from.
OK.

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