TIPS/LMP Concerns

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HappyJack
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TIPS/LMP Concerns

Post by HappyJack »

I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
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FIREchief
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Re: TIPS/LMP Concerns

Post by FIREchief »

HappyJack wrote: Fri Jul 17, 2020 10:35 am I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Topic Author
HappyJack
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Re: TIPS/LMP Concerns

Post by HappyJack »

Thank you.
Angst
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Re: TIPS/LMP Concerns

Post by Angst »

FIREchief wrote: Fri Jul 17, 2020 1:09 pm
HappyJack wrote: Fri Jul 17, 2020 10:35 am I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
HappyJack,

Not to disagree with the chief, but there are two specific "historic" events which cause concern. I would not want to have had to redeem my TIPS mutual funds for retirement living expenses during these two time frames when TIPS seemed to defy logic and plummet in price while real rates shot up. Now if you're really only taking the "income stream" of coupons, it's not an issue, but if you're drawing down the TIPS mutual fund portfolio, it could matter:

- 2008, from about Oct 10th thru Dec 1st.
- 2020, from about Mar 10th thru Mar 25th.

These two oddball events give me enough pause to simply say that anyone who is drawing down TIPS mutual funds on a regular (say monthly) schedule in retirement would want to know in the event of the return of one of these kinds of anomalies and have a plan to deal with it. Neither lasted very long and 2008 was much more dramatic in terms of the range in rate/price change and the collapse in the spread btw nominal and real rates. So I'm not saying it would be catastrophic, but as much as these past events were highly unusual buying opportunities, they were also poor opportunities to sell. Simply holding some additional nominal savings might be sufficient. TIPS have had their moments.

I will note however that anyone (like FIREchief) holding individual TIPS to maturity has no concerns about this and would not be affected.
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HappyJack
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Re: TIPS/LMP Concerns

Post by HappyJack »

Thanks Angst. I will be drawing down out of the ETFs To fund my income so that could be an issue. I will have some funds on the Risk Portfolio side so I hope that can see me through a rough patch.
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Re: TIPS/LMP Concerns

Post by Robot Monster »

FIREchief wrote: Fri Jul 17, 2020 1:09 pm
HappyJack wrote: Fri Jul 17, 2020 10:35 am ...and allocated TIPS funds (LTPZ and FIPDX)
Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity.
But since funds never mature, is deflation more of an issue with TIPS funds?
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Re: TIPS/LMP Concerns

Post by ikowik »

FIREchief wrote: Fri Jul 17, 2020 1:09 pm

I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
Please help clarify as I am trying to understand how TIPS would work for me.
If I buy $1000 of 10-year TIPS at auction and hold it to the end, whatever the deflation over the 10 years, I will get $1000 at the end. And if there is inflation, I will get something extra. Clear so far.
But I see that recent auctions have set a negative yield for TIPS. Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%.
So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right?
Also, if yield to maturity is negative, the TIPS will not keep up with inflation fully and under-perform any inflation by 0.5% yearly. Is this correct?
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Re: TIPS/LMP Concerns

Post by dbr »

ikowik wrote: Sat Jul 18, 2020 2:02 pm

Please help clarify as I am trying to understand how TIPS would work for me.
If I buy $1000 of 10-year TIPS at auction and hold it to the end, whatever the deflation over the 10 years, I will get $1000 at the end. And if there is inflation, I will get something extra. Clear so far.
But I see that recent auctions have set a negative yield for TIPS. Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%.
So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right?
Also, if yield to maturity is negative, the TIPS will not keep up with inflation fully and under-perform any inflation by 0.5% yearly. Is this correct?
Right, but I am also going to add that a TIPS LMP is supposed to be a ladder of TIPS rather than funds so that everything is held to maturity. There are some issues actually finding TIPS to fit each year, and there have been threads where how to design this in detail have been worked out. That doesn't mean you can't operate a portfolio holding funds as a spend down operation, but then all the variability of holding funds comes in.

For information one can calculate how much yearly income can be taken for 30 years from a TIPS ladder as a fraction of the cost of the whole ladder. At 0% real the number is easy, in real dollars that is 1/30 of the investment or a withdrawal rate of 3.33%. Pending some errors in my math the withdrawal rate at -0.5% real is 3.1% at and -1% 2.9%. At a real yield of 1% the withdrawal is 3.8% and at 2% you get 4.4%.

So a problem is that if you buy your ladder when rates are low you lock in a low payout. That is also true when buying annuities and any other attempt at formulating an LMP.
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Re: TIPS/LMP Concerns

Post by vineviz »

HappyJack wrote: Sat Jul 18, 2020 12:58 pm Thanks Angst. I will be drawing down out of the ETFs To fund my income so that could be an issue. I will have some funds on the Risk Portfolio side so I hope that can see me through a rough patch.
Presumably you will be be generating your retirement income in one of the following ways:

A) sell a minuscule amount of your funds frequently (e.g. 1/360th each month). In this case, maybe one month in a hundred you might unexpectedly get 10% less than you expected. if this derails your retirement, you might have bigger problems.

B) sell a tiny amount of your funds periodically (e.g 1/30th each year. In this case, keep at least 30 days worth of expenses in your checking account or ultrashort term bonds so you can avoid selling when liquidity is expensive.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: TIPS/LMP Concerns

Post by dbr »

vineviz wrote: Sat Jul 18, 2020 2:17 pm
HappyJack wrote: Sat Jul 18, 2020 12:58 pm Thanks Angst. I will be drawing down out of the ETFs To fund my income so that could be an issue. I will have some funds on the Risk Portfolio side so I hope that can see me through a rough patch.
Presumably you will be be generating your retirement income in one of the following ways:

A) sell a minuscule amount of your funds frequently (e.g. 1/360th each month). In this case, maybe one month in a hundred you might unexpectedly get 10% less than you expected. if this derails your retirement, you might have bigger problems.

B) sell a tiny amount of your funds periodically (e.g 1/30th each year. In this case, keep at least 30 days worth of expenses in your checking account or ultrashort term bonds so you can avoid selling when liquidity is expensive.
This is true. It seems that often in these conversations people imagine selling the whole lot just when some blip appears, and that is just not what a person does.
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Re: TIPS/LMP Concerns

Post by jeffyscott »

ikowik wrote: Sat Jul 18, 2020 2:02 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm

I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
Please help clarify as I am trying to understand how TIPS would work for me.
If I buy $1000 of 10-year TIPS at auction and hold it to the end, whatever the deflation over the 10 years, I will get $1000 at the end. And if there is inflation, I will get something extra. Clear so far.
But I see that recent auctions have set a negative yield for TIPS. Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%.
So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right?
Also, if yield to maturity is negative, the TIPS will not keep up with inflation fully and under-perform any inflation by 0.5% yearly. Is this correct?
I think your concept is correct, but math is off. TD says: If a Treasury note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent with the price adjusted accordingly (i.e., at a premium).
https://www.treasurydirect.gov/instit/m ... gative.htm

But if the YTM is -0.5% real that is the annual over 10 years, so I think that mean you'd have to pay ~5% premium and price would be ~$1050. Then the minimum coupon has to be offset as well, so that comes to about another 1.25% over 10 years, so price should be something like $1063, I think :?: .

Edit: Confirming my estimate, I found this showing $106.232 per $100 for 10 year with real yield at -0.47%
https://tipswatch.com/2020/05/22/10-yea ... ince-2013/
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FIREchief
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Re: TIPS/LMP Concerns

Post by FIREchief »

ikowik wrote: Sat Jul 18, 2020 2:02 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm

I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
Please help clarify as I am trying to understand how TIPS would work for me.
If I buy $1000 of 10-year TIPS at auction and hold it to the end, whatever the deflation over the 10 years, I will get $1000 at the end. And if there is inflation, I will get something extra. Clear so far.
But I see that recent auctions have set a negative yield for TIPS. Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%.
So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right?
Also, if yield to maturity is negative, the TIPS will not keep up with inflation fully and under-perform any inflation by 0.5% yearly. Is this correct?
You're understanding is generally correct (if I'm correct in assuming that you meant to say $1050). Please remember that TIPS have a minimum coupon of .125%, so you'll pay a bit more than that $1050 to cover the coupons (it won't be exactly $1050, #cruncher has provided the best Excel formulas for calculating the approximate premium you will pay). You'll pay more than $1000 at any time that the auction determines a real rate that is less than .125%. It also gets more complicated when you buy at a reopening auction.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by FIREchief »

jeffyscott wrote: Sat Jul 18, 2020 2:21 pm
ikowik wrote: Sat Jul 18, 2020 2:02 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm

I'm not sure what the "other potential TIPS negatives" are. I can't think of any.

To your questions:

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity. The original principle will be received even if there has been five, ten or thirty years of deflation. Even if buying in the secondary market or a fund, the buyer's purchasing power will be preserved (which is the main reason to buy TIPS in the first place).

Illiquidity: if a person holds individual TIPS to maturity, illiquidity is of zero concern. My personal opinion is that the "illiquidity' concern with TIPS is way over blown. Other than a few brief periods of economic upheaval, they have consistently been highly liquid with very small bid/ask spreads. At the end of the day, they are a US treasury with full guarantee by the US Treasury. There is no default risk to scare away buyers.

Hope that helps.
Please help clarify as I am trying to understand how TIPS would work for me.
If I buy $1000 of 10-year TIPS at auction and hold it to the end, whatever the deflation over the 10 years, I will get $1000 at the end. And if there is inflation, I will get something extra. Clear so far.
But I see that recent auctions have set a negative yield for TIPS. Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%.
So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right?
Also, if yield to maturity is negative, the TIPS will not keep up with inflation fully and under-perform any inflation by 0.5% yearly. Is this correct?
I think your concept is correct, but math is off. TD says: If a Treasury note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent with the price adjusted accordingly (i.e., at a premium).
https://www.treasurydirect.gov/instit/m ... gative.htm

But if the YTM is -0.5% real that is the annual over 10 years, so I think that mean you'd have to pay ~5% premium and price would be ~$1050. Then the minimum coupon has to be offset as well, so that comes to about another 1.25% over 10 years, so price should be something like $1063, I think :?: .

Edit: Confirming my estimate, I found this showing $106.232 per $100 for 10 year with real yield at -0.47%
https://tipswatch.com/2020/05/22/10-yea ... ince-2013/
Looks like you beat me to this! :sharebeer
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FIREchief
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Re: TIPS/LMP Concerns

Post by FIREchief »

Robot Monster wrote: Sat Jul 18, 2020 1:10 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm
HappyJack wrote: Fri Jul 17, 2020 10:35 am ...and allocated TIPS funds (LTPZ and FIPDX)
Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity.
But since funds never mature, is deflation more of an issue with TIPS funds?
If you hold the funds long term, I don't know if deflation would be considered a meaningful issue or not. I haven't given that much thought because I hold only individual issue TIPS. Why pay a funds ER and lose control of duration when it is so easy and free to just buy individual TIPS?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by Angst »

dbr wrote: Sat Jul 18, 2020 2:20 pm
vineviz wrote: Sat Jul 18, 2020 2:17 pm
HappyJack wrote: Sat Jul 18, 2020 12:58 pm Thanks Angst. I will be drawing down out of the ETFs To fund my income so that could be an issue. I will have some funds on the Risk Portfolio side so I hope that can see me through a rough patch.
Presumably you will be be generating your retirement income in one of the following ways:

A) sell a minuscule amount of your funds frequently (e.g. 1/360th each month). In this case, maybe one month in a hundred you might unexpectedly get 10% less than you expected. if this derails your retirement, you might have bigger problems.

B) sell a tiny amount of your funds periodically (e.g 1/30th each year. In this case, keep at least 30 days worth of expenses in your checking account or ultrashort term bonds so you can avoid selling when liquidity is expensive.
This is true. It seems that often in these conversations people imagine selling the whole lot just when some blip appears, and that is just not what a person does.
Yes, all quite true as well, we're not talking "catastrophe" here, but better of course when it happens in the 1st month rather the 360th one. :)
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Re: TIPS/LMP Concerns

Post by HappyJack »

My plan is to rebalance down from the long-term to intermediate term funds periodically during the year. Also from the intermediate fund to a stable value fund. The funds will be rebalancing themselves. This should keep my duration matching on target, I hope. I am not wild about the .20 expense fee for the long-term fund. Going forward, I may move into a ladder.
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Re: TIPS/LMP Concerns

Post by HappyJack »

So Vineviz. Yes its B. And thanks for all your help in the past
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Re: TIPS/LMP Concerns

Post by #Cruncher »

jeffyscott wrote: Sat Jul 18, 2020 2:21 pm
ikowik wrote: Sat Jul 18, 2020 2:02 pm... Let us assume the next auction for 10-year TIPS sets a yield to maturity of -0.5%. So, would I pay $1005 for that $1000 worth of TIPS? If that is so, when I redeem at term, I get my investment - $5, right? ...
... if the YTM is -0.5% real that is the annual over 10 years, so I think that mean you'd have to pay ~5% premium and price would be ~$1050. Then the minimum coupon has to be offset as well, so that comes to about another 1.25% over 10 years, so price should be something like $1063, I think :?: .
You think right, jeffyscott; a price of 106.3 is very close! A slightly better approximation can be made with the Excel PV function. Here it is for next Thursday's initial 10-year auction, assuming a yield of -0.5%: [*]

106.387 = -100 * PV(-0.5% / 2, (DATE(2030, 7, 15) - DATE(2020, 7, 31)) / (365.25 / 2), 0.125% / 2, 1, 0)

The following Excel sheet gives even more accuracy (overkill for most purposes):

Code: Select all

Row                     Col A       Col B
  1                Settlement  07/31/2020
  2                  Maturity  07/15/2030
  3                    Coupon      0.125% 
  4         Yield to maturity     (0.500%)
  5   Days in interest period         184  =COUPDAYS(  B1,B2,2,1)
  6     Days after settlement         168  =COUPDAYSNC(B1,B2,2,1)
  7   Number of interest pmts          20  =COUPNUM(   B1,B2,2,1)
  8  Present value 01/15/2021     106.089  =-PV(B4/2,B7-1,100*(B3/2),100,0)
  9  Present value 07/31/2020     106.394  =(B8+100*(B3/2))/(1+B4/2)^(B6/B5)
 10          Accrued interest       0.005  =100*(B3/2)*(1-B6/B5)
 11               Clean price     106.389  =B9-B10
This gives the same result to 6 decimal places as FICALC, the Web's Fixed Income Calculator. For positive yields it also gives the same result as the Excel PRICE function, which unfortunately doesn't work for negative yields.
jeffyscott in same post wrote:Edit: Confirming my estimate, I found this showing $106.232 per $100 for 10 year with real yield at -0.47%
https://tipswatch.com/2020/05/22/10-yea ... ince-2013/
106.232 is the adjusted price after applying the 1.00344 index ratio. The unadjusted price at this auction was 105.868. The index ratio for next Thursday's auction will be 1.00001 which, if the yield comes in at -0.5% [*] would bump the unadjusted price of 106.389 only up to 106.390. So in the highly unlikely event that the CPI falls over the ten years from 7/15/2020 to 7/15/2030, a purchaser would get back $6.390 less principal per $100 at maturity than what he paid.

* The yield at next week's auction will likely be much lower than -0.5%. The TIPS maturing a year earlier on 7/15/2029 was yielding only -0.911% according to Friday's WSJ TIPS Quotes.
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Re: TIPS/LMP Concerns

Post by ikowik »

Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
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Re: TIPS/LMP Concerns

Post by Robot Monster »

FIREchief wrote: Sat Jul 18, 2020 2:42 pm
Robot Monster wrote: Sat Jul 18, 2020 1:10 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm
HappyJack wrote: Fri Jul 17, 2020 10:35 am ...and allocated TIPS funds (LTPZ and FIPDX)
Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity.
But since funds never mature, is deflation more of an issue with TIPS funds?
If you hold the funds long term, I don't know if deflation would be considered a meaningful issue or not. I haven't given that much thought because I hold only individual issue TIPS. Why pay a funds ER and lose control of duration when it is so easy and free to just buy individual TIPS?
You're right. Damn. I just did the calculation on how much $$$ I'm paying for VAIPX and it does take a bite. I see Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) holds 46 bonds, but perhaps that's a bit overkill and unnecessary and I could get by with fewer and, like you say, be able to choose a preferred duration.

Did you buy your TIPS on the secondary market or at auction?
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Re: TIPS/LMP Concerns

Post by Always passive »

HappyJack wrote: Fri Jul 17, 2020 10:35 am I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
Can you please refresh my memory on Merton's strategy? How does it work? Thank you for your help
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Re: TIPS/LMP Concerns

Post by jeffyscott »

#Cruncher wrote: Sat Jul 18, 2020 4:53 pm * The yield at next week's auction will likely be much lower than -0.5%. The TIPS maturing a year earlier on 7/15/2029 was yielding only -0.911% according to Friday's WSJ TIPS Quotes.
And daily yield curve shows -0.82% for 10 year. So I guess a price of something like $110 per $100 can be expected. Tough times for those trying to do the LMP thing, they will be locking in fairly significant real losses over a 10 year period.

Would an auction price of $110 also mean that even if there is net deflation over the entire 10 years, there would be no deflation protection unless the cumulative deflation were to exceed about 10%, since for every $110 invested you are only guaranteed to get $100 back (neglecting the 0.125% coupon).
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bigskyguy
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Re: TIPS/LMP Concerns

Post by bigskyguy »

Always passive wrote: Sun Jul 19, 2020 8:56 am
HappyJack wrote: Fri Jul 17, 2020 10:35 am I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
Can you please refresh my memory on Merton's strategy? How does it work? Thank you for your help
Google "The Crisis in Retirement Planning" Harvard Business Review by Robert Merton, from 2014.
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Re: TIPS/LMP Concerns

Post by FIREchief »

Robot Monster wrote: Sun Jul 19, 2020 8:52 am
FIREchief wrote: Sat Jul 18, 2020 2:42 pm
Robot Monster wrote: Sat Jul 18, 2020 1:10 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm
HappyJack wrote: Fri Jul 17, 2020 10:35 am ...and allocated TIPS funds (LTPZ and FIPDX)
Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity.
But since funds never mature, is deflation more of an issue with TIPS funds?
If you hold the funds long term, I don't know if deflation would be considered a meaningful issue or not. I haven't given that much thought because I hold only individual issue TIPS. Why pay a funds ER and lose control of duration when it is so easy and free to just buy individual TIPS?
You're right. Damn. I just did the calculation on how much $$$ I'm paying for VAIPX and it does take a bite. I see Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) holds 46 bonds, but perhaps that's a bit overkill and unnecessary and I could get by with fewer and, like you say, be able to choose a preferred duration.

Did you buy your TIPS on the secondary market or at auction?
I've bought them both at auction and in the secondary market. The spread in the secondary market is typically very small. That said, I prefer to buy them at auction. In one more month I'll have my ten year ladder complete (all ten year January TIPS). So, starting in 2021, I'll have an entire rung mature each January and I'll just reinvest it all in the January auction. It would be "nice" if rates improved a bit by then, but I'm not holding my breath.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by FIREchief »

jeffyscott wrote: Sun Jul 19, 2020 9:29 am Would an auction price of $110 also mean that even if there is net deflation over the entire 10 years, there would be no deflation protection unless the cumulative deflation were to exceed about 10%, since for every $110 invested you are only guaranteed to get $100 back (neglecting the 0.125% coupon).
The $100 is what is protected against deflation. The other $10 is really just prepayment to receive .125% coupons every year instead of -0.8% coupons.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by FIREchief »

ikowik wrote: Sun Jul 19, 2020 8:39 am Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
As you may realize, if you buy a TIPS with -1% real yield, and inflation averages 2% per year, you'll still wind up being paid 1% for them to hold your money. So, in nominal terms, you're making money but in inflation adjusted terms you are falling slightly behind. Unfortunately, a lot of folks aren't able to see it this way (or simply refuse to). :oops:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by Robot Monster »

FIREchief wrote: Sun Jul 19, 2020 1:46 pm
Robot Monster wrote: Sun Jul 19, 2020 8:52 am
FIREchief wrote: Sat Jul 18, 2020 2:42 pm
Robot Monster wrote: Sat Jul 18, 2020 1:10 pm
FIREchief wrote: Fri Jul 17, 2020 1:09 pm

Deflation: if a person buys individual TIPS at auction, there is no concern with deflation if held to maturity.
But since funds never mature, is deflation more of an issue with TIPS funds?
If you hold the funds long term, I don't know if deflation would be considered a meaningful issue or not. I haven't given that much thought because I hold only individual issue TIPS. Why pay a funds ER and lose control of duration when it is so easy and free to just buy individual TIPS?
You're right. Damn. I just did the calculation on how much $$$ I'm paying for VAIPX and it does take a bite. I see Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) holds 46 bonds, but perhaps that's a bit overkill and unnecessary and I could get by with fewer and, like you say, be able to choose a preferred duration.

Did you buy your TIPS on the secondary market or at auction?
I've bought them both at auction and in the secondary market. The spread in the secondary market is typically very small. That said, I prefer to buy them at auction. In one more month I'll have my ten year ladder complete (all ten year January TIPS). So, starting in 2021, I'll have an entire rung mature each January and I'll just reinvest it all in the January auction. It would be "nice" if rates improved a bit by then, but I'm not holding my breath.
Appreciate the feedback on that, thanks.
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Re: TIPS/LMP Concerns

Post by rlangford »

FIREchief wrote: Sun Jul 19, 2020 1:52 pm
ikowik wrote: Sun Jul 19, 2020 8:39 am Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
As you may realize, if you buy a TIPS with -1% real yield, and inflation averages 2% per year, you'll still wind up being paid 1% for them to hold your money. So, in nominal terms, you're making money but in inflation adjusted terms you are falling slightly behind. Unfortunately, a lot of folks aren't able to see it this way (or simply refuse to). :oops:
Firechief, for someone trying to build a partial LMP, would you recommend skipping this upcoming 10 year auction? Current real YTM at -0.81%. I realize that the breakeven inflation is approximately 1.4% so it is still priced relatively better than a Treasury bond if one expects inflation to pick up at some point. Thanks for your thoughts.
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Re: TIPS/LMP Concerns

Post by FIREchief »

rlangford wrote: Sun Jul 19, 2020 2:51 pm
FIREchief wrote: Sun Jul 19, 2020 1:52 pm
ikowik wrote: Sun Jul 19, 2020 8:39 am Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
As you may realize, if you buy a TIPS with -1% real yield, and inflation averages 2% per year, you'll still wind up being paid 1% for them to hold your money. So, in nominal terms, you're making money but in inflation adjusted terms you are falling slightly behind. Unfortunately, a lot of folks aren't able to see it this way (or simply refuse to). :oops:
Firechief, for someone trying to build a partial LMP, would you recommend skipping this upcoming 10 year auction? Current real YTM at -0.81%. I realize that the breakeven inflation is approximately 1.4% so it is still priced relatively better than a Treasury bond if one expects inflation to pick up at some point. Thanks for your thoughts.
I buy according to my plan regardless of yield. We all wish our fixed income was providing positive real return right now, but in most cases that's just not what is happening. It likely won't change until the helicopter money runs out. :annoyed
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Re: TIPS/LMP Concerns

Post by vineviz »

rlangford wrote: Sun Jul 19, 2020 2:51 pm
FIREchief wrote: Sun Jul 19, 2020 1:52 pm
ikowik wrote: Sun Jul 19, 2020 8:39 am Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
As you may realize, if you buy a TIPS with -1% real yield, and inflation averages 2% per year, you'll still wind up being paid 1% for them to hold your money. So, in nominal terms, you're making money but in inflation adjusted terms you are falling slightly behind. Unfortunately, a lot of folks aren't able to see it this way (or simply refuse to). :oops:
Firechief, for someone trying to build a partial LMP, would you recommend skipping this upcoming 10 year auction? Current real YTM at -0.81%. I realize that the breakeven inflation is approximately 1.4% so it is still priced relatively better than a Treasury bond if one expects inflation to pick up at some point. Thanks for your thoughts.
One of the key attributes of LMP or partial-LMP approach to retirement income is that it builds a safe "floor" of income using your risk-free assets (TIPS and/or nominal Treasuries whose cash flows match your expected expenses).

Real yields are what they are at the moment, which may be disappointing. However, "waiting" for some future change in bond prices is introducing interest rate risk and/or inflation risk into what is designed to be a risk-free strategy. It's a game of market timing that you may win or lose, but either way it is trading certainty for speculation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: TIPS/LMP Concerns

Post by rlangford »

vineviz wrote: Sun Jul 19, 2020 3:36 pm
rlangford wrote: Sun Jul 19, 2020 2:51 pm
FIREchief wrote: Sun Jul 19, 2020 1:52 pm
ikowik wrote: Sun Jul 19, 2020 8:39 am Thank you dbr, jeffyscott and FIREchief. Very helpful. My hesitation was due to looking at the negative yield on TIPS without considering the break-even inflation rate compared to Treasury bonds. It is a mental mistake and deep-rooted dislike for the concept of paying someone to hold my money.
As you may realize, if you buy a TIPS with -1% real yield, and inflation averages 2% per year, you'll still wind up being paid 1% for them to hold your money. So, in nominal terms, you're making money but in inflation adjusted terms you are falling slightly behind. Unfortunately, a lot of folks aren't able to see it this way (or simply refuse to). :oops:
Firechief, for someone trying to build a partial LMP, would you recommend skipping this upcoming 10 year auction? Current real YTM at -0.81%. I realize that the breakeven inflation is approximately 1.4% so it is still priced relatively better than a Treasury bond if one expects inflation to pick up at some point. Thanks for your thoughts.
One of the key attributes of LMP or partial-LMP approach to retirement income is that it builds a safe "floor" of income using your risk-free assets (TIPS and/or nominal Treasuries whose cash flows match your expected expenses).

Real yields are what they are at the moment, which may be disappointing. However, "waiting" for some future change in bond prices is introducing interest rate risk and/or inflation risk into what is designed to be a risk-free strategy. It's a game of market timing that you may win or lose, but either way it is trading certainty for speculation.
Thank you vineviz for your thoughts.
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Re: TIPS/LMP Concerns

Post by NoRegret »

HappyJack wrote: Fri Jul 17, 2020 10:35 am I have established a liability duration matching portfolio (LDI) and allocated TIPS funds (LTPZ and FIPDX) in duration matched amounts to give me the income stream to fund retirement (26 years) (Many thanks to bobk, vineviz, Nisiprius, CUlater, FIREchief, bigskyguy, and others who have educated me along the way along with the work of Bob Merton. Miles of threads, lots of knowledge)

I’m not concerned with volatility as long as the income stream will be secure for the duration.
Do I need to be concerned with deflation, illiquidity, or any of the other potential TIPS negatives that I have seen on the forum?

I think not over the long term, but wanted any input.

Thanks.
Headline inflation doesn’t match your personal rate of inflation?
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
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Re: TIPS/LMP Concerns

Post by bigskyguy »

I see three distinct perspectives on retirement savings, and dependent upon one's age as well as one's financial circumstances, one will predominate.

First perspective is that of what is the total value of my assets. Clearly the bigger the better. And historically one with this perspective valued growth which almost universally meant equities or risk investments. And that certainly makes sense when one is young and can hopefully ride out the relatively infrequent but sometimes prolonged periods of underperformance that is inherent in risk investment. I find the analytics that Tyler has displayed at portfoliocharts.com to be clarifying and most understandable to me. For me personally, this perspective dominated my financial world view until my late 50s.

Second is the income perspective. What revenue stream can I expect to receive from the portfolio that I have constructed. In many ways, it is not dissimilar from the perspective of an employed individual, in that the focus is not so much upon what my portfolio is worth, but more on what is my revenue stream, predictable or variable, that I can expect from my portfolio. What is the level of consumption that my portfolio can and will support, and how much variability can and will I accept from that portfolio. This perspective dominated my financial world view into my mid to late 60a.

The final perspective is what I will call the expense perspective. The focus here isn't really upon one's assets or revenues, but more on one's liabilities, predictable and unexpected. And I can say unequivocally as a relatively recent retiree, this is where the rubber has really hit the road. Honestly appraising one's expenses (the essential and predictable ones, as well as the one's that seem to either come out of nowhere or are the extras that support our creativity or individuality) seem to have taken center stage in my present stage, early 70s. And it does indeed remain a work in progress.

What LMP has done for me is make the transition from the second perspective to the third perspective work. And I can say with no hesitation that I find TIPS the single most logical investment instrument for the essential and predictable expenses we face. For us as retirees, TIPS are to Social Security what our Medicare Supplement is to our Medicare. Much like our Medicare Supplement pays for our medical expenses not covered by Medicare, our TIPS ladder covers our essential and predictable living expenses that are not covered by Social Security. Just like our Medicare Supplement comes at a cost, our TIPS ladder comes at a cost. Yet the advantage of knowing, in both cases, that our essential needs are going to be met is priceless. I've spent a lot of time looking for alternatives to TIPS for the purpose that we use them, and honestly have not found any (inflation indexed annuities would work, but they no longer are marketed, and tontines [read Moshe Milevsky if you want more info] are only theoretical at this point). TIPS are indeed very expensive right now, but it's a price we are willing to pay.

One person's approach.
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Re: TIPS/LMP Concerns

Post by HappyJack »

Thanks bigskyguy. I look for the liability duration matching income plan to provide a solid base to cover our needs. Thanks for a great post.
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Re: TIPS/LMP Concerns

Post by FIREchief »

bigskyguy wrote: Sun Jul 19, 2020 6:52 pm What LMP has done for me is make the transition from the second perspective to the third perspective work. And I can say with no hesitation that I find TIPS the single most logical investment instrument for the essential and predictable expenses we face. For us as retirees, TIPS are to Social Security what our Medicare Supplement is to our Medicare. Much like our Medicare Supplement pays for our medical expenses not covered by Medicare, our TIPS ladder covers our essential and predictable living expenses that are not covered by Social Security. Just like our Medicare Supplement comes at a cost, our TIPS ladder comes at a cost. Yet the advantage of knowing, in both cases, that our essential needs are going to be met is priceless. I've spent a lot of time looking for alternatives to TIPS for the purpose that we use them, and honestly have not found any (inflation indexed annuities would work, but they no longer are marketed, and tontines [read Moshe Milevsky if you want more info] are only theoretical at this point). TIPS are indeed very expensive right now, but it's a price we are willing to pay.
I think this is a fantastic way of looking at this. Thanks! :sharebeer

I'm not to Medicare yet, but I like your comparisons with Medigap. My earlier thinking was to just go with Medicare Advantage and likely save a few dollars, but I'm now 99% convinced that I will go with either Medigap G or G high deductible. I don't mind the deductible, but I really value that the insurance companies really aren't involved in the decision making. 8-)
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Re: TIPS/LMP Concerns

Post by bigskyguy »

FIREchief wrote: Sun Jul 19, 2020 10:58 pm
bigskyguy wrote: Sun Jul 19, 2020 6:52 pm What LMP has done for me is make the transition from the second perspective to the third perspective work. And I can say with no hesitation that I find TIPS the single most logical investment instrument for the essential and predictable expenses we face. For us as retirees, TIPS are to Social Security what our Medicare Supplement is to our Medicare. Much like our Medicare Supplement pays for our medical expenses not covered by Medicare, our TIPS ladder covers our essential and predictable living expenses that are not covered by Social Security. Just like our Medicare Supplement comes at a cost, our TIPS ladder comes at a cost. Yet the advantage of knowing, in both cases, that our essential needs are going to be met is priceless. I've spent a lot of time looking for alternatives to TIPS for the purpose that we use them, and honestly have not found any (inflation indexed annuities would work, but they no longer are marketed, and tontines [read Moshe Milevsky if you want more info] are only theoretical at this point). TIPS are indeed very expensive right now, but it's a price we are willing to pay.
I think this is a fantastic way of looking at this. Thanks! :sharebeer

I'm not to Medicare yet, but I like your comparisons with Medigap. My earlier thinking was to just go with Medicare Advantage and likely save a few dollars, but I'm now 99% convinced that I will go with either Medigap G or G high deductible. I don't mind the deductible, but I really value that the insurance companies really aren't involved in the decision making. 8-)
As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
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Re: TIPS/LMP Concerns

Post by FIREchief »

bigskyguy wrote: Sun Jul 19, 2020 11:22 pm As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
Thanks. I'm guessing as a cardiologist, you're more familiar with how the various insurance systems work than most of us. I appreciate your inputs.
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Re: TIPS/LMP Concerns

Post by bigskyguy »

FIREchief wrote: Mon Jul 20, 2020 12:31 pm
bigskyguy wrote: Sun Jul 19, 2020 11:22 pm As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
Thanks. I'm guessing as a cardiologist, you're more familiar with how the various insurance systems work than most of us. I appreciate your inputs.
Let me give you my personal experience. I've been covered by a Medigap F plan for 6 years now (Medigap G is essentially Medigap F with a $128/year deductible - coverage otherwise identical). During that time I've had three major surgical procedures, annual exams, multiple specialty consults, extended physical therapy. During that time I've not had a dime of out of pocket expenses for any of those services, and the only paperwork I've received is quarterly statements from Medicare on what was billed, and what they paid. Not a single piece of paper related to charges or coverage from any provider or any health care facility. I can't emphasize enough just how much relief that simple fact is. I can honestly say that the only way I'd give Medigap up is if it were pried out of my cold, dead hands.
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Re: TIPS/LMP Concerns

Post by Grt2bOutdoors »

jeffyscott wrote: Sun Jul 19, 2020 9:29 am
#Cruncher wrote: Sat Jul 18, 2020 4:53 pm * The yield at next week's auction will likely be much lower than -0.5%. The TIPS maturing a year earlier on 7/15/2029 was yielding only -0.911% according to Friday's WSJ TIPS Quotes.
And daily yield curve shows -0.82% for 10 year. So I guess a price of something like $110 per $100 can be expected. Tough times for those trying to do the LMP thing, they will be locking in fairly significant real losses over a 10 year period.

Would an auction price of $110 also mean that even if there is net deflation over the entire 10 years, there would be no deflation protection unless the cumulative deflation were to exceed about 10%, since for every $110 invested you are only guaranteed to get $100 back (neglecting the 0.125% coupon).
Buy Series I savings bonds.
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Re: TIPS/LMP Concerns

Post by Grt2bOutdoors »

bigskyguy wrote: Mon Jul 20, 2020 12:54 pm
FIREchief wrote: Mon Jul 20, 2020 12:31 pm
bigskyguy wrote: Sun Jul 19, 2020 11:22 pm As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
Thanks. I'm guessing as a cardiologist, you're more familiar with how the various insurance systems work than most of us. I appreciate your inputs.
Let me give you my personal experience. I've been covered by a Medigap F plan for 6 years now (Medigap G is essentially Medigap F with a $128/year deductible - coverage otherwise identical). During that time I've had three major surgical procedures, annual exams, multiple specialty consults, extended physical therapy. During that time I've not had a dime of out of pocket expenses for any of those services, and the only paperwork I've received is quarterly statements from Medicare on what was billed, and what they paid. Not a single piece of paper related to charges or coverage from any provider or any health care facility. I can't emphasize enough just how much relief that simple fact is. I can honestly say that the only way I'd give Medigap up is if it were pried out of my cold, dead hands.
It’s not cheap coverage though, it does come with a good upfront cost that many may not be able to afford so they choose other plans and roll the dice so to speak.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: TIPS/LMP Concerns

Post by FIREchief »

bigskyguy wrote: Mon Jul 20, 2020 12:54 pm
FIREchief wrote: Mon Jul 20, 2020 12:31 pm
bigskyguy wrote: Sun Jul 19, 2020 11:22 pm As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
Thanks. I'm guessing as a cardiologist, you're more familiar with how the various insurance systems work than most of us. I appreciate your inputs.
Let me give you my personal experience. I've been covered by a Medigap F plan for 6 years now (Medigap G is essentially Medigap F with a $128/year deductible - coverage otherwise identical). During that time I've had three major surgical procedures, annual exams, multiple specialty consults, extended physical therapy. During that time I've not had a dime of out of pocket expenses for any of those services, and the only paperwork I've received is quarterly statements from Medicare on what was billed, and what they paid. Not a single piece of paper related to charges or coverage from any provider or any health care facility. I can't emphasize enough just how much relief that simple fact is. I can honestly say that the only way I'd give Medigap up is if it were pried out of my cold, dead hands.
Thanks. 8-) I know that once things like surgery occur, we lose a lot of control over the whole "in network" vs. "out of network" part of the equation. As I mentioned, I'm 99% certain I'll go Medigap plan G when I reach 65 (your comments probably brought that up to around 99.5% :P ).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: TIPS/LMP Concerns

Post by FIREchief »

Grt2bOutdoors wrote: Mon Jul 20, 2020 1:02 pm
bigskyguy wrote: Mon Jul 20, 2020 12:54 pm
FIREchief wrote: Mon Jul 20, 2020 12:31 pm
bigskyguy wrote: Sun Jul 19, 2020 11:22 pm As far as Medicare supplements versus Medicare Advantage comparisons go, I’ll give you my simple analogy. Medigap G is essentially hassle free coverage - you’ll never see a bill. Advantage has extras but in return you will have the hassle of dealing with in and out of plan providers, referral requirements, limited panels, and paperwork. Advantage is no free lunch. Full disclosure, I am a retired cardiologist who is fully supportive of national health coverage (Medicare for all if you will).
Thanks. I'm guessing as a cardiologist, you're more familiar with how the various insurance systems work than most of us. I appreciate your inputs.
Let me give you my personal experience. I've been covered by a Medigap F plan for 6 years now (Medigap G is essentially Medigap F with a $128/year deductible - coverage otherwise identical). During that time I've had three major surgical procedures, annual exams, multiple specialty consults, extended physical therapy. During that time I've not had a dime of out of pocket expenses for any of those services, and the only paperwork I've received is quarterly statements from Medicare on what was billed, and what they paid. Not a single piece of paper related to charges or coverage from any provider or any health care facility. I can't emphasize enough just how much relief that simple fact is. I can honestly say that the only way I'd give Medigap up is if it were pried out of my cold, dead hands.
It’s not cheap coverage though, it does come with a good upfront cost that many may not be able to afford so they choose other plans and roll the dice so to speak.
I agree. That said, I think the tangent started with the suggestion that paying extra for TIPS (as the foundation of an LMP) is similar to paying extra for Medigap. Both may be luxuries that many cannot afford, so they take on a bit more risk to improve their expected financial outcomes. I think the thought is that for those who can afford those without jeopardizing a successful retirement outcome, they may be better ways of spending "extra" money than flying first class, staying in the finest hotels, etc. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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