TIPS - Did you give up?

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abuss368
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Did you used to invest in TIPS?

Post by abuss368 » Tue Jun 30, 2015 3:54 pm

To expand on another thread:

1) How many Bogleheads used to invest in TIPS (i.e. individual bonds, TIPS mutual funds, etc.) in years past but have since sold out?

2) If you sold out of TIPS, what did you invest in to replace TIPS?

The current interest rate environment is challenging. Inflation forecasts appear very tame. There are so many inflation hawks today, with many market tools and analysis is unexpected inflation a risk to the degree of the 1970's and early 1980's?

Should an investor focus on beating inflation over the long term with equities or investing in unexpected inflation "insurance" with TIPS?
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Re: Did you used to invest in TIPS?

Post by livesoft » Tue Jun 30, 2015 4:04 pm

I bought some shares of VIPSX back in October and December 2008. I sold in March 2009 for the simple reason that the fund NAV went up 3% in one day March 18, 2009. Bond funds are not supposed to move 3% in one day, so I stopped trusting it and sold about a week later. I exchanged into Vanguard GNMA bond fund.
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Re: Did you used to invest in TIPS?

Post by jebmke » Tue Jun 30, 2015 4:05 pm

I sold about half of our holdings. The proceeds went into Short Term Investment Grade.
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Re: Did you used to invest in TIPS?

Post by Ice-9 » Tue Jun 30, 2015 4:11 pm

I stopped buying TIPS for a period when I Bonds were a better deal, which from memory I think was around 2011 to 2013 or so, and bought I Bonds instead. Didn't sell existing TIPS though. TIPS are a better deal than I Bonds again, and I'm occasionally buying TIPS again.

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Re: Did you used to invest in TIPS?

Post by dkturner » Tue Jun 30, 2015 4:14 pm

Since inflation hasn't been a problem lately I sold all of my TIPS in the early part of 2008 and purchased intermediate term investment grade corporate bonds.

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Re: Did you used to invest in TIPS?

Post by sport » Tue Jun 30, 2015 4:17 pm

I am retired, and inflation, should it become significant, would be a problem for me. So, I have a TIPS fund as insurance against that event. I expect the TIPS fund to have a lower return than a nominal bond fund. However, that is the cost of insurance, and I feel it is a worthwhile "expense" for me.

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Re: Did you used to invest in TIPS?

Post by oneleaf » Tue Jun 30, 2015 4:18 pm

I used to invest in NOMINAL treasuries but exchanged out of them for investment grade bonds shortly after the global financial crisis due to low yields. I have not returned to buying them. All of the reasons for avoiding TIPS seems to apply to nominal treasuries just as much, if not more. At least with TIPS, you get protection from unexpected inflation. Even if the risk is low, it is not like you are paying an insurance premium for it relative to nominals. For that reason, I have kept a significant allocation to TIPS, but have the rest of my bonds in investment-grade and bank CD's.

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Re: TIPS - Did you give up?

Post by Rx 4 investing » Tue Jun 30, 2015 4:30 pm

Good question for discussion. I look forward to reading everyone's thoughts.

While I do agree that inflation is tame, and may even go lower in the near term...

1. I continue to maintain a modest position in TIPS. (10% presently; goal 20% ). I am slowly adding to my position; bi-annually when funds permit, and while prices are low. There is always a possibility of an inflationary recession where equities and stock market performance may or may not deliver. I am hesitant to have all my inflation protection in just equities.

2. I have a fairly diversified bond portfolio with allocations to high yield corporate bonds, EM bonds, investment grade corporates, and long-term treasuries. Most of these are in Vanguard's mutual funds in each of these sub-categories. (My 401-K only offers Vanguard's TBM fund.)
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Re: TIPS - Did you give up?

Post by Leif » Tue Jun 30, 2015 4:40 pm

Did I give up? - No.

I've kept all my TIPS bonds. I will keep them until they mature. When they mature I will either roll them into Vanguard's short term TIPS or rebalance in equities. My intermediate TIPS bond fund I've sold and bought Vanguard's ST TIPS fund. TIPS represent about 20% of my fixed income assets.

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Re: TIPS - Did you give up?

Post by baw703916 » Tue Jun 30, 2015 5:07 pm

abuss368 wrote:
Vanguard has removed the Intermediate TIPS fund and does not really address this asset class any longer.
Did VIPSX go away? I see it listed in Vanguard's fund lineup and don't see any announcement of it being liquidated.

I own LTPZ. I'm not sure why I would give up on TIPS. They're doing their job of paying a coupon pus the inflation rate. :)
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Re: TIPS - Did you give up?

Post by stevewolfe » Tue Jun 30, 2015 5:11 pm

I maintain 20% of fixed income in inflation protected bonds. I sold the last of my Vanguard TIPS fund in early 2013. Currently, we are a little underweight vs. our target for TIPS - mostly due to the annual purchase limit constraints of I-Bonds. We buy the annual limit for I-Bonds and that's what's replaced TIPS (we had been doing this for years, so it adds up). I want the protection for unexpected inflation for a portion of our portfolio, but am challenged by the current environment, so we've kept the I-Bonds (and added to them) and sold off the TIPS fund.

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Re: TIPS - Did you give up?

Post by bottlecap » Tue Jun 30, 2015 5:13 pm

No, I still have them. I pay more every year, but they don't!

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Re: TIPS - Did you give up?

Post by SimpleGift » Tue Jun 30, 2015 5:29 pm

abuss368 wrote:Should an investor focus on beating inflation over the long term with equities or investing in unexpected inflation "insurance" with TIPS?
An investor should do both, in my view. In a 50% stock/50% bond balanced portfolio such as mine, the equities have the long-term responsibility of growing at a strong enough pace ahead of inflation to inflation-protect both themselves as well as the bond allocation. By maintaining 20% of my bond allocation in TIPS over the long term, it makes the equities' inflation-protection job 20% easier!

Certainly the low inflation, high equity return environment of recent years has made overall portfolio inflation-protection a relatively easy job — but this will not always be the case. So the TIPS are in my portfolio to stay.
Cordially, Todd

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Re: TIPS - Did you give up?

Post by dad2000 » Tue Jun 30, 2015 5:49 pm

I've never owned TIPS, but I have been buying $40K in I-Bonds annually. It's a way of extending my tax-advantaged space. They represent about about 20% of my retirement bond allocation (7% of retirement portfolio).

I haven't purchased yet this year, hoping that the fixed rate increases from 0.

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Re: TIPS - Did you give up?

Post by abuss368 » Tue Jun 30, 2015 5:56 pm

baw703916 wrote:
abuss368 wrote:
Vanguard has removed the Intermediate TIPS fund and does not really address this asset class any longer.
Did VIPSX go away? I see it listed in Vanguard's fund lineup and don't see any announcement of it being liquidated.

I own LTPZ. I'm not sure why I would give up on TIPS. They're doing their job of paying a coupon pus the inflation rate. :)
I should have worded differently: I was referring to discussion and advice Vanguard publishes.

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Re: TIPS - Did you give up?

Post by zaboomafoozarg » Tue Jun 30, 2015 5:58 pm

dad2000 wrote:I've never owned TIPS, but I have been buying $40K in I-Bonds annually. It's a way of extending my tax-advantaged space. They represent about about 20% of my retirement bond allocation (7% of retirement portfolio).
I also use I-Bonds as 20% of my retirement bond allocation. The rest of the I-Bonds I buy are being saved for buying a house.

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Re: TIPS - Did you give up?

Post by abuss368 » Tue Jun 30, 2015 6:00 pm

dad2000 wrote:I've never owned TIPS, but I have been buying $40K in I-Bonds annually. It's a way of extending my tax-advantaged space. They represent about about 20% of my retirement bond allocation (7% of retirement portfolio).

I haven't purchased yet this year, hoping that the fixed rate increases from 0.
Interesting. A material amount invested in I Bonds each year.

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Re: Did you used to invest in TIPS?

Post by abuss368 » Tue Jun 30, 2015 6:03 pm

I tried to delete this thread when I first posted. I had another thread going! Perhaps someone knows how to merge?
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Re: TIPS - Did you give up?

Post by Call_Me_Op » Tue Jun 30, 2015 6:04 pm

abuss368 wrote: The current interest rate environment is challenging. Inflation forecasts appear very tame.
TIPS are intended to protect against unexpected inflation, so inflation forecasts should have nothing to do with their attractiveness (relative to other bonds).
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Re: TIPS - Did you give up?

Post by SimpleGift » Tue Jun 30, 2015 6:20 pm

Call_Me_Op wrote:
abuss368 wrote: The current interest rate environment is challenging. Inflation forecasts appear very tame.
TIPS are intended to protect against unexpected inflation, so inflation forecasts should have nothing to do with their attractiveness (relative to other bonds).
Plus, inflation forecasts, both by professional economists and the market itself (through the breakeven rate) have historically been quite poor (chart below). Though it hasn't been true lately, inflation is very often unexpected.
Cordially, Todd

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Re: TIPS - Did you give up?

Post by rnitz » Tue Jun 30, 2015 7:48 pm

Give up on TIPS? Nope, I have a fondness of staying the course.

We invested in TIPS as a key part of our bond portfolio to provide some safety to one of Bill Bernstein's Deep Risks - inflation. For those that haven't lived through a persistent, grinding inflation it's not pleasant (in comparison, Bernstein characterized a stock market crash like 2008 as a "shallow risk"). We of course have a significant equity position as well, but for those who think this solves the inflation risk note that stocks don't do particularly well under periods of high or unexpected inflation (they just happen to do better than alternatives like nominal bonds).

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Re: TIPS - Did you give up?

Post by Artsdoctor » Tue Jun 30, 2015 7:54 pm

I don't own a TIPS fund but I have individual TIPS that will provide basic living expenses from age 65 to 85.

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Re: TIPS - Did you give up?

Post by nisiprius » Tue Jun 30, 2015 8:01 pm

No, I haven't given up. Why would I? Nothing that has happened has led me to consider changing. They continue to represent 40% of my fixed income. They continue to be the second-closest thing to a riskless investment I know (the closest being series I savings bonds). In return for low risk, you get low return, and why wouldn't you expect to? I'm aware that TIPS have fluctuated more in market value than I'd like. I didn't like the 10% fall in 2008 and, quite honestly, I didn't like the 10% rise that preceded it in 2007. I also understand that, as someone who lived through the double-digit inflation around 1980, I'm probably fighting the last war and "with my luck" there will not be any inflation and I could do just as well with nominals--but even under unfavorable assumptions, TIPS are still not that much worse than any other Treasuries.

I did make a major change, though. Looking at the way my wife's eyes glazed over when I asked her to review our Vanguard statement, I decided if [insert euphemistic contingency here] and she needed to manage the portfolio herself, I'd better simplify it. So I bit the bullet and liquidated all of my individual TIPS and replaced them with the Vanguard Inflation-Protected Securities fund, which has roughly the same distribution of maturities. It really gave me a pang to do this because I do prefer individual bonds to a bond fund, but taking it all in all I decided it was the right thing to do.
Last edited by nisiprius on Tue Jun 30, 2015 8:07 pm, edited 1 time in total.
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Re: TIPS - Did you give up?

Post by Artsdoctor » Tue Jun 30, 2015 8:06 pm

^ WHY, oh why, did you ask her to look at the statement??? :shock:

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Re: TIPS - Did you give up?

Post by mindboggling » Tue Jun 30, 2015 8:08 pm

I've never owned TIPS but I started buying I-bonds in 2004. Currently, I-bonds are about 9 percent of my total investment portfolio and about 14 percent of the fixed income portion. Overall asset allocation is 40 percent equities/60 percent FI.

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Re: TIPS - Did you give up?

Post by nisiprius » Tue Jun 30, 2015 8:11 pm

Artsdoctor wrote:^ WHY, oh why, did you ask her to look at the statement??? :shock:
Because if [insert euphemistic contingency here], I really want her to manage the portfolio herself and not go to any advisor. I'm convinced that financial planning is truly needed for someone with five times our income and a more complicated financial situation than ours, but I am really appalled by what I see of the way "financial advisors" handle the investments of the "mass affluent." She does not want to use an advisor--she says "all the stories I read in the papers about people losing all their money are about people who had (crooked) financial advisors" and I am strongly supporting that inclination.
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Re: TIPS - Did you give up?

Post by baw703916 » Tue Jun 30, 2015 8:13 pm

abuss368 wrote:
I should have worded differently: I was referring to discussion and advice Vanguard publishes.
OK, I wondered about if that was what you meant.

My solution is to just ignore advice, even from Vanguard.:)
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Re: TIPS - Did you give up?

Post by joe8d » Tue Jun 30, 2015 8:14 pm

TIPS are intended to protect against unexpected inflation,
I keep seeing this statement.To me,TIPS are intended to keep pace with actual Inflation.All future inflation is unpredictable.
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Re: TIPS - Did you give up?

Post by telemark » Tue Jun 30, 2015 8:36 pm

joe8d wrote:
TIPS are intended to protect against unexpected inflation,
I keep seeing this statement.To me,TIPS are intended to keep pace with actual Inflation.All future inflation is unpredictable.
Yes, but expected inflation is priced in, so in an efficient market you would do as well in nominal bonds.

I own VIPSX in my Roth IRA and a Blackrock TIPS fund in one 401K, and plan to continue with them. It's known as staying the course :happy

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Re: TIPS - Did you give up?

Post by Angst » Tue Jun 30, 2015 8:38 pm

abuss368 wrote:Should an investor focus on beating inflation over the long term with equities or investing in unexpected inflation "insurance" with TIPS?
I've had no reason to give up on TIPS - I continue to hold/accumulate TIPS at auction.

I'm kinda confused about what it is you're after here. The two distinct ideas of trying to beat inflation by investing in equity and trying to safely preserve real value by investing in TIPS are not mutually exclusive, nor are they similar. I embrace both of them.

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Re: TIPS - Did you give up?

Post by CantPassAgain » Tue Jun 30, 2015 9:02 pm

Vanguard still uses TIPS in their target retirement funds as they approach their target dates, so they must think they have a place in a conservatively balanced portfolio.

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Re: TIPS - Did you give up?

Post by letsgobobby » Tue Jun 30, 2015 9:47 pm

Sort of? I only owned TIPS from 2002-2011, and I didn't have a strong philosophy about their role in my portfolio. In 2011 I started buying I bonds instead. I'll buy more TIPS when their real return is 2%+. Saying that out loud, I think I'll only buy TIPS for their return, not their low risks.

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Re: TIPS - Did you give up?

Post by abuss368 » Tue Jun 30, 2015 9:51 pm

CantPassAgain wrote:Vanguard still uses TIPS in their target retirement funds as they approach their target dates, so they must think they have a place in a conservatively balanced portfolio.
Vanguard uses the Short Term TIPS Index Fund in the Target Retirement Income Portfolio. The Intermediate TIPS Fund has been removed from the Target lineup. Duration risks was cited. Frankly I do not understand the need for a short term TIPS fund even more when compared to short term bonds!
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Re: TIPS - Did you give up?

Post by nedsaid » Tue Jun 30, 2015 10:03 pm

I have not given up on TIPS. I still own them. I have not given up on REITs. I still own them though I took a portion and invested in International Real Estate. I have not given up on my Timber REITs. I have not given up on common stocks. By golly, if inflation ever rears its ugly head again this boy is going to be ready.
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Re: TIPS - Did you give up?

Post by abuss368 » Tue Jun 30, 2015 10:06 pm

nedsaid wrote:I have not given up on TIPS. I still own them. I have not given up on REITs. I still own them though I took a portion and invested in International Real Estate. I have not given up on my Timber REITs. I have not given up on common stocks. By golly, if inflation ever rears its ugly head again this boy is going to be ready.
Hi nedsaid,

What Timber REIT fund (or individual stock) do you invest in to battle inflation?

Best.
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Re: TIPS - Did you give up?

Post by nedsaid » Tue Jun 30, 2015 10:21 pm

abuss368 wrote:
nedsaid wrote:I have not given up on TIPS. I still own them. I have not given up on REITs. I still own them though I took a portion and invested in International Real Estate. I have not given up on my Timber REITs. I have not given up on common stocks. By golly, if inflation ever rears its ugly head again this boy is going to be ready.
Hi nedsaid,

What Timber REIT fund (or individual stock) do you invest in to battle inflation?

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Re: Did you used to invest in TIPS?

Post by sport » Tue Jun 30, 2015 11:09 pm

abuss368 wrote:I tried to delete this thread when I first posted. I had another thread going! Perhaps someone knows how to merge?
Send a PM to a moderator. They can merge for you.

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Re: Did you used to invest in TIPS?

Post by abuss368 » Tue Jun 30, 2015 11:35 pm

sport wrote:
abuss368 wrote:I tried to delete this thread when I first posted. I had another thread going! Perhaps someone knows how to merge?
Send a PM to a moderator. They can merge for you.
Thanks!
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Re: TIPS - Did you give up?

Post by Whiggish Boffin » Tue Jun 30, 2015 11:45 pm

I still have my TIPS, and intend to buy some more.

Two years ago, I put about 1/3 of my nest egg into a TIPS ladder. If I lose my job, the ladder will support me in genteel poverty until I'm 70. I can then claim the highest Social Security benefit. I want to invest the ladder's money at minimal risk, including risk of lost purchasing power to inflation. TIPS are the right tool for that job.

I held onto my job last year. I didn't have to spend that rung on living expenses. Instead, I rolled it into three rungs of a smaller ladder that will supplement Social Security. Now I'm fully funded for genteel poverty through age 73. If I keep working in the coming year, I'll buy three more little rungs. That will push out my annuity purchase to age 77.

TIPS provide insurance, at a cost, against something that may not happen. A lot of smart people here do not expect any unexpected inflation, and decline to pay the cost. They could well be right.

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Re: TIPS - Did you give up?

Post by CFM300 » Wed Jul 01, 2015 12:12 am

dad2000 wrote:I... I have been buying $40K in I-Bonds annually.
How are you doing this? I thought the maximum was $15k per SSN. $10k through Treasury Direct and another $5k via tax refund.

Even assuming it's actually you and your spouse that have been buying annually, that would still only be $30k, and that assumes (I think) that you file separately, otherwise, as a couple you'd be limited to a single $5k via tax refund (I think), hence: $10k (him) + $10 (her) + $5k (joint) = $25k

What am I missing?

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Re: TIPS - Did you give up?

Post by abuss368 » Wed Jul 01, 2015 12:14 am

That is a high amount of inflation protection.
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Re: TIPS - Did you give up?

Post by abuss368 » Wed Jul 01, 2015 6:27 am

Excellent thread!
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Re: Did you used to invest in TIPS?

Post by abuss368 » Wed Jul 01, 2015 6:28 am

Thanks Bogleheads!
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Re: TIPS - Did you give up?

Post by dodecahedron » Wed Jul 01, 2015 6:31 am

CFM300 wrote:
dad2000 wrote:I... I have been buying $40K in I-Bonds annually.
How are you doing this? I thought the maximum was $15k per SSN. $10k through Treasury Direct and another $5k via tax refund.

Even assuming it's actually you and your spouse that have been buying annually, that would still only be $30k, and that assumes (I think) that you file separately, otherwise, as a couple you'd be limited to a single $5k via tax refund (I think), hence: $10k (him) + $10 (her) + $5k (joint) = $25k

What am I missing?
I am not dad2000, but if each member of a couple has a personal trust set up for themselves, they can buy $10K each for themselves and $10K each for their trusts.

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Re: TIPS - Did you give up?

Post by abuss368 » Wed Jul 01, 2015 8:02 am

dodecahedron wrote:
CFM300 wrote:
dad2000 wrote:I... I have been buying $40K in I-Bonds annually.
How are you doing this? I thought the maximum was $15k per SSN. $10k through Treasury Direct and another $5k via tax refund.

Even assuming it's actually you and your spouse that have been buying annually, that would still only be $30k, and that assumes (I think) that you file separately, otherwise, as a couple you'd be limited to a single $5k via tax refund (I think), hence: $10k (him) + $10 (her) + $5k (joint) = $25k

What am I missing?
I am not dad2000, but if each member of a couple has a personal trust set up for themselves, they can buy $10K each for themselves and $10K each for their trusts.
How many folks go to the trouble of setting up trusts to invest in I Bonds?
Last edited by abuss368 on Wed Jul 01, 2015 8:34 am, edited 1 time in total.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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dodecahedron
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Re: TIPS - Did you give up?

Post by dodecahedron » Wed Jul 01, 2015 8:33 am

abuss368 wrote:
How many folks go to the trouble of setting up trusts to invest in TIPS?
No limits on how many TIPS you can buy, so I assume you are asking about ibonds, not TIPS.

There are other reasons to set up revocable living trusts (e.g., to make it easier for someone else of your choice to manage your finances in the event you have a stroke, an accident, or other incapacitating event, to make the transition of some of your assets after death more private and possibly smoother than doing so through a will.) And, as I understand it, revocable living trusts are not too hard to set up nor all that expensive to maintain.

At recent rates, I don't think anyone would set up a trust to buy more ibonds, but I can imagine that if you already have a trust for other reasons, some folks might want to take advantage of the opportunity to buy more ibonds.

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abuss368
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Re: TIPS - Did you give up?

Post by abuss368 » Wed Jul 01, 2015 8:35 am

dodecahedron wrote:
abuss368 wrote:
How many folks go to the trouble of setting up trusts to invest in TIPS?
No limits on how many TIPS you can buy, so I assume you are asking about ibonds, not TIPS.

There are other reasons to set up revocable living trusts (e.g., to make it easier for someone else of your choice to manage your finances in the event you have a stroke, an accident, or other incapacitating event, to make the transition of some of your assets after death more private and possibly smoother than doing so through a will.) And, as I understand it, revocable living trusts are not too hard to set up nor all that expensive to maintain.

At recent rates, I don't think anyone would set up a trust to buy more ibonds, but I can imagine that if you already have a trust for other reasons, some folks might want to take advantage of the opportunity to buy more ibonds.
Correct, I did mean I Bonds not TIPS. I edited my earlier post.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Hawkeye5
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Re: TIPS - Did you give up?

Post by Hawkeye5 » Wed Jul 01, 2015 1:53 pm

Never give up!
TIPS are an important component, in my opinion, of my retirement bond ladder. The plan is that the bond ladder will provide annual supplemental income during retirement and I have spaced some TIPS into the ladder at intervals, in addition to increasing the ladder amounts, to account for inflation.
We all know what happens to plans, but I feel secure with this plan and TIPS adds to that feeling.
On the other hand, if the US government defaults I'm toast!

feh
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Re: TIPS - Did you give up?

Post by feh » Wed Jul 01, 2015 2:30 pm

Working towards having 20% of fixed income in TIPS by retirement (probably next year).

Currently at 16%. I include I Bonds in that percentage.

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Re: TIPS - Did you give up?

Post by heyyou » Wed Jul 01, 2015 3:14 pm

Didn't give up, 'cause I didn't start buying TIPS. I was new at M* when Mel said to "back up the truck" for those +3% TIPS.

SS will be 40% of my income at age 70. With a low hurdle on necessary spending, I can afford the time for my equities to outgrow inflation. That was not clear to me when I started retirement with a no-COLA pension.

Research has to be focused to strain out the noise, but not every retiree has expenses that match the highest SWR, thus needing to maintain 100% of real spending.

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