All my TIPS are presently in negative territory

Always passive · Post by **Always passive** » Sun Sep 17, 2023 8:27 am

I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

jebmke · Post by **jebmke** » Sun Sep 17, 2023 8:30 am

In general, the whole idea behind using a ladder is that the bonds will mature and you will get face value. This is supposed to allow you to ignore value fluctuations unless a need arises to sell the bonds before they mature.

nedsaid · Post by **nedsaid** » Sun Sep 17, 2023 8:37 am

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

You did exactly the right thing, it just doesn't feel like it. Real yields for TIPS have been going up which means that prices for TIPS have gone down in response. Also keep in mind that nominal bond funds would be underwater as well. Interest rates went up, they went up by a lot, bonds are down from their all time highs as a result. My portfolio losses from 2022 seem to be largely from bonds, so far in 2023 stocks have been recovering but bonds are up only by a tiny bit. Just hang in there, you will be okay.

MishkaWorries · Post by **MishkaWorries** » Sun Sep 17, 2023 8:44 am

No need to worry. When your bonds mature, they will pay you the face value plus all the inflation adjustments that are owed. You won't lose any money and you'll get exactly what you were promised as long as you hold to maturity.

stevewolfe · Post by **stevewolfe** » Sun Sep 17, 2023 9:03 am

I agree with the other posters, and I own a non-rolling TIPS ladder over the same time period. The plan is to hold to maturity, so the value at a random point in between won't really matter. If the bonds were up, instead of down, would you sell them or continue to hold to maturity? If the answer is hold to maturity, then it doesn't really matter what the current value is.

Call_Me_Op · Post by **Call_Me_Op** » Sun Sep 17, 2023 9:10 am

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

Note that you are still in effect receiving those 4%-5% returns (that you see on treasuries) on your TIPS. That is, the yield-to-maturity (YTM) on your TIPS is essentially the same as the interest rate you see on new treasury securities with the same time to maturity. Many people fail to realize the bond values behave like a spring. When they go down it's like a spring being compressed, and there is a force pushing upwards that will return the spring to its original length (face value at maturity). In the interim, the bond is spitting-out interest payments as promised (unless it's a zero-coupon bond).

dbr · Post by **dbr** » Sun Sep 17, 2023 9:15 am

All the posters are correct of course, explaining the whole basic concept of a TIPS ladder to be cashed year by year at maturity for spending.

One nuance is that the bonds can have been bought for more or less than the face value. A little bit ago TIPS were sold at a premium with a result that the real yield to maturity was negative. The face value at maturity is less than the price paid to buy the bond. Now TIPS are at positive yield meaning that one pays less than face value for the bond and gets it back at maturity. Also one should note the fixed coupon. That can be as little as 1/8%, effectively zero, meaning there are no interest payments of note along the way. At other times the fixed coupon can be more. This interest is paid against the inflation indexed face value of the bond.

er999 · Post by **er999** » Sun Sep 17, 2023 9:24 am

I’d suggest this article by Bill Bernstein:

https://www.advisorperspectives.com/art ... at-age-104

Tips are riskless if held to the year of maturity, at least in the sense you will get the real yield you signed up for when you bought the original tips. Along the way they can be highly volatile. This can cause panicked reactions like you are having.

It’s true that you could have gotten a better deal for buying tips now than when you originally bought them, but assuming you were satisfied with the terms when you purchased them I’d just keep them. All longer term bonds lost value so if you have bought nominal treasuries years ago would have seen a similar effect.

It’s possible inflation could spike again between now and 2027. For April 30 2027 nominal treasuries are paying 4.61% and tips 4/15/27 are paying a real yield of 2.34%, for a difference of 2.27%, the inflation break ever rate. Seems worthwhile to get inflation protection at that rate.

If you sold all your tips and put in a money market there’s no guarantee the 5% rates will last. It could be in 1-2 years the rate is down to 2%.

dbr · Post by **dbr** » Sun Sep 17, 2023 9:41 am

er999 wrote: ↑Sun Sep 17, 2023 9:24 am
It’s true that you could have gotten a better deal for buying tips now than when you originally bought them, but assuming you were satisfied with the terms when you purchased them I’d just keep them. All longer term bonds lost value so if you have bought nominal treasuries years ago would have seen a similar effect.

The biggest determinate of how well a long TIPS ladder will serve a person is the real interest rate available when you can or choose to buy them. This is risk in the sense that the rate is "randomly" variable and can't be controlled by the purchaser. "Luck of history" is a neglected concept regarding risk.
It is not risk in the sense that at any time you do know exactly what you are getting and can make a choice.

Note for a hypothetical 30 year ladder TIPS bought at 0% real produce a payout of income on investment of 3.33%. At +2% you get about 4.4% and at -2% you get about 2.4%.

pizzy · Post by **pizzy** » Sun Sep 17, 2023 9:45 am

The worst thing you could do would be to sell them before maturity.

Unless an exceptional need arises, hold tight.

Always passive · Post by **Always passive** » Sun Sep 17, 2023 10:04 am

Thank you all

Valuethinker · Post by **Valuethinker** » Sun Sep 17, 2023 10:22 am

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

If you only lost money on 1 year in bonds you are doing pretty well.

I have bonds (UK) that are down 20-30%. Thank you to our abortive 47 day premiership & its effect on bond markets.

If you have a 15 year ladder, losing 1 year is neither here nor there. I'd worry more about interest rates going back down again, leaving you with terrible yields for reinvesting coupons.

Right now the yield curve is inverted (short term yields above longer term yields). These periods in bond markets don't usually last long. When it reverses, you won't want to be holding more short term bonds.

I'd say stay the course, and keep reinvesting cash you don't need.

bd7 · Post by **bd7** » Sun Sep 17, 2023 10:32 am

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

First, definitely do nothing--you're along for the ride now and just like a roller coaster, no matter how bad that ride might seem getting off will definitely hurt more.

Second, the way that Fidelity displays the valuation for TIPS would drive anyone to despair and it always looks like you are losing money. As an example, I have a 5-year TIPS, CUSIP 91282CFR7, 1.625% coupon maturing 10/15/27. Yields have come up to a bit over 2% on these, so the price is depressed in the interim and there is the additional factor that secondary buyers discount the inflation adjustments a bit since these are not totally risk-free. I purchased this TIPS at auction for just below par at the original issue 10/15/22. Fidelity shows me a current price of $97.768 and a cost basis of $102.59, along with a "current value" of $100.79. Those numbers are deceptive because of how they account for the inflation adjustments. The cost basis is not just what I paid for it, which was something like $99.80, it includes the inflation adjustments so far. The current price is not what I would get if I sold it, the actual selling price would be the listed current price (97.768) x the current inflation factor (1.03109) + accumulated interest since the last coupon (0.6771) for a total of $101.68. Add in the previous coupon of 0.8125 I received earlier in the year and you'll see that instead of losing $4.822 as you might think from Fidelity's display, I've gained $2.49. Fidelity displays things this way for a reason--they're not 'wrong', but it can be misleading if you don't fully understand it.

Take the CUSIP and look it up on Treasury Direct, read the website "Tipswatch" and try to understand the end result a bit better. If you bought your TIPS when real yields were lower (or negative) then your values will drop in the interim but at maturity you'll end up where you bargained to be. In the meantime, you are protected against sustained inflation which is the only real reason to hold TIPS. Anyone buying TIPS on the secondary market should understand that you are paying cash money for the baked in inflation adjustments which are not guaranteed and can be lost if there is sustained, substantial deflation. As a result you usually acquire those bonds at a small discount.

You'll be OK. Just think of the roller coaster--even if you get a little sick on the ride, that's nothing compared to the damage you'll incur if you unbuckle and jump out. And who knows--if we get some solid stagflation in the next 5-10 years, those TIPS might turn out to be a very good bet.

If you find my explanation difficult to follow, pick a CUSIP of your own and post it here, along with what you actually paid for it and the current price, value and cost basis from Fidelity.

Jaylat · Post by **Jaylat** » Sun Sep 17, 2023 12:08 pm

bd7 wrote: ↑Sun Sep 17, 2023 10:32 am Fidelity shows me a current price of $97.768 and a cost basis of $102.59, along with a "current value" of $100.79. Those numbers are deceptive because of how they account for the inflation adjustments. The cost basis is not just what I paid for it, which was something like $99.80, it includes the inflation adjustments so far.

I've noticed and posted about the same problem at Schwab, which greatly amplifies the estimated TIPS losses.

If Fidelity is like Schwab, the TIPS cost basis numbers include the "market discount accruals," not the inflation adjustments.

bd7 · Post by **bd7** » Sun Sep 17, 2023 12:37 pm

Jaylat wrote: ↑Sun Sep 17, 2023 12:08 pm If Fidelity is like Schwab, the TIPS cost basis numbers include the "market discount accruals," not the inflation adjustments.

Is that what Schwab calls it? Although those seem functionally equivalent, I'd associate the former with something like Treasury Zeros, not TIPS since TIPS are not an inherently discounted bond. Perhaps they just reused the terminology. In any case, I'd expect a lot of brokerages to have similar issues. After all, since you pay the tax as you go with TIPS, the cost basis that you would use in a sale does indeed rise as well.

Jaylat · Post by **Jaylat** » Sun Sep 17, 2023 2:14 pm

bd7 wrote: ↑Sun Sep 17, 2023 12:37 pm
Jaylat wrote: ↑Sun Sep 17, 2023 12:08 pm If Fidelity is like Schwab, the TIPS cost basis numbers include the "market discount accruals," not the inflation adjustments.
Is that what Schwab calls it? Although those seem functionally equivalent, I'd associate the former with something like Treasury Zeros, not TIPS since TIPS are not an inherently discounted bond. Perhaps they just reused the terminology. In any case, I'd expect a lot of brokerages to have similar issues. After all, since you pay the tax as you go with TIPS, the cost basis that you would use in a sale does indeed rise as well.

No, it's completely different from the inflation accrual. If you buy any bond at a discount, they add the market discount incrementally to the adjusted cost basis. Same thing happens with a premium, which would be deducted.

Schwab's adjusted basis does not include the inflation adjustment at all - you get the same adjustment for a regular (non-TIPS) Treasury bond.

GettingCloser · Post by **GettingCloser** » Sun Sep 17, 2023 2:32 pm

For folks holding individual TIPS to maturity, the daily “market values” listed for those TIPS are (virtually*) meaningless. Those values merely represent what buyers on the secondary market are willing to pay *today* for a given issue. If tonight’s news reports that inflation is subsiding, you’ll likely see that “market value” drop tomorrow.

But the intrinsic value of that particular TIPS hasn’t changed — in fact, it’s actually gone up ever so slightly, in direct proportion to the daily change in the CPI.

(*) Note that I said “virtually” above, because I can’t *completely* ignore the market values of my TIPS — I need to enter them into my tracking spreadsheet to get it to balance vs Vanguard. I’ve been entering those values once or twice a week for over a dozen years now — which is why I keep pointing out that TIPS prices on the secondary market are are only loosely coupled to the real values of TIPS that are held to maturity.

For TIPS held to maturity, it’s very easy to calculate their real value at any point — it’s (face value eg $4000 for four units of an issue) times (today’s CPI) over (what the CPI was on the issue date). Those CPI numbers are easy to fetch from Treasury Direct, btw.

Before adding those equations to my spreadsheet, I noticed that the “amount needed to buy” for each year’s LMP ladder rung fluctuated wildly based on the whims of the market. When I started tracking the real TIPS values, that noise went away.

More insight came when I added a column displaying the difference between the “market value” and the real value of each TIPS. Currently, almost every TIPS issue I track has a “market value” significantly lower than its real value. The only exceptions are older TIPS with high coupon rates, which is due to the fact that I ignore the present value of future coupon payments (for LMP purposes, I really only care about the TIPS values at maturity — coupon payments in the meantime are gravy).

Net net to the OP: don’t fret over the market values of TIPS you’re holding to maturity. Unless you happened to buy them at a peak of the secondary market, they’re probably not really underwater — calculate their real value to know for sure.

anoop · Post by **anoop** » Sun Sep 17, 2023 2:46 pm

I am in the same boat. This is because the rate has been going up. I don’t worry. What matters is that I’m receiving a positive rate. There were negative yielding TIPS at some point! And I’m continuing to buy new ones at the higher rate. So I plan to hold to maturity.

I also have a small amount of 2 year notes which are also underwater since they yield 4.25 and 4.5 and they have about a year left and the 1 year bill gets 5+.

That is how bonds work. That’s why I’m cautious loading up on anything beyond 2 year till the yield curve uninverts. And for TIPS I’m sticking to 5 years (which is yielding more than the 10 year).

folkher0 · Post by **folkher0** » Sun Sep 17, 2023 2:50 pm

As others have said: don’t sell. That would be the worst thing you could do and absolutely the wrong way to use a bond ladder. The point of a treasury ladder strategy is to hold each bond till maturity for a guaranteed return.

Don’t sell. With a treasury ladder you should be in it till maturity. Don’t even look. It does you no good.

whodidntante · Post by **whodidntante** » Sun Sep 17, 2023 2:53 pm

Seems fairly standard since real yields rocketed up at a breakneck pace. Hopefully you didn't buy that "bonds are for safety." That's a line of crap. It's more accurate to say that bonds have different risks than equities.

bd7 · Post by **bd7** » Sun Sep 17, 2023 2:55 pm

Jaylat wrote: ↑Sun Sep 17, 2023 2:14 pm Schwab's adjusted basis does not include the inflation adjustment at all - you get the same adjustment for a regular (non-TIPS) Treasury bond.

Hmmm...doesn't that presume that you bought the bond at a discount to begin with? What does it show for a bond that you bought at or near par value? Fidelity is definitely showing me significant cost basis adjustment for a TIPS that I bought very near par at auction. OTOH, a treasury that I bought at a discount a while back shows me a cost basis of exactly what I paid for it, to the penny. And as for Schwab, what is the exact point (if you know) of showing an adjusted cost basis that does not accurately reflect your tax basis??

It appears the Fidelity is not like Schwab in this regard, or perhaps your account is set differently.

#Cruncher · Post by **#Cruncher** » Sun Sep 17, 2023 3:42 pm

bd7 wrote: ↑Sun Sep 17, 2023 10:32 am... I have a 5-year TIPS, CUSIP 91282CFR7, 1.625% coupon maturing 10/15/27. ... I purchased this TIPS at auction for just below par at the original issue ... Fidelity shows me a current price of $97.768 ... the actual selling price would be the listed current price (97.768) x the current inflation factor (1.03109) + accumulated interest since the last coupon ... Add in the previous coupon of 0.8125 I received earlier in the year and you'll see that ... I've gained $2.49.

I compute a slightly better gain of $2.80 (per $100 of face value) as shown in cell D18 below.

Code: Select all

Row               Col A        Col B       Col C      Col D   Formula in Column B
  2          Face value          100
  3            Maturity   10/15/2027
  4              Coupon       1.625%
  5                           Bought        Sold
  6                Date   10/31/2022   9/18/2023
  7               Price    99.493344   97.768000

Code: Select all

  8   Yield to maturity       1.732%      2.201%             =YIELD(B6,$B3,$B4,B7,100,2,1)
  9  Prev interest date   10/15/2022   4/15/2023             =COUPPCD(B6,$B3,2,1)
 10  Next interest date    4/15/2023  10/15/2023             =COUPNCD(B6,$B3,2,1)
 11      Days in period          182         183             =B10-B9
 12  Days before settle           16         156             =B6-B9
 13    Accrued interest       0.0714      0.6926             =$B2*($B4/2)*(B12/B11)
 
 14                Date       Real $   Idx Ratio  Indexed $
 15          10/31/2022     -99.5648     0.99982   -99.5469  =-(B2*(B7/100)+B13)
 16           4/15/2023       0.8125     1.01256     0.8227  =B$2*(B$4/2)
 17           9/18/2023      98.4606     1.03109   101.5218  =B2*(C7/100)+C13
 18         Gain/(Loss)      -0.2916                 2.7976  =SUM(B15:B17)
 19    Annual Pct Yield      -0.333%                 3.204%  =XIRR(B15:B17,$A15:$A17)

Notes

Purchase date and price in cells B6:B7 from the auction results PDF.
Formulas in cells B8:B13 are copied right to column C.
Indexed $ in cells D15:D17 equal the unindexed $ in cells B15:B17 multiplied by the index ratios in cells C15:C17. Index ratios can be obtained from this TreasuryDirect TIPS/CPI Query Results page.
Formulas in cells B18:B19 are copied to cells D18:D19.
Formulas use the Excel YIELD, COUPPCD, COUPNCD, and XIRR functions.

Jaylat · Post by **Jaylat** » Sun Sep 17, 2023 4:06 pm

bd7 wrote: ↑Sun Sep 17, 2023 2:55 pm
Jaylat wrote: ↑Sun Sep 17, 2023 2:14 pm Schwab's adjusted basis does not include the inflation adjustment at all - you get the same adjustment for a regular (non-TIPS) Treasury bond.
Hmmm...doesn't that presume that you bought the bond at a discount to begin with? What does it show for a bond that you bought at or near par value? Fidelity is definitely showing me significant cost basis adjustment for a TIPS that I bought very near par at auction. OTOH, a treasury that I bought at a discount a while back shows me a cost basis of exactly what I paid for it, to the penny. And as for Schwab, what is the exact point (if you know) of showing an adjusted cost basis that does not accurately reflect your tax basis??

It appears the Fidelity is not like Schwab in this regard, or perhaps your account is set differently.

I'm still trying to find out the point - I've had several discussions with Schwab about it. If you are positive that Fidelity includes the inflation adjustment then they do use a different calculation. I spoke with the head of the Cost Basis team at Schwab and he demonstrated how it worked.

Artsdoctor · Post by **Artsdoctor** » Sun Sep 17, 2023 4:15 pm

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

You're going to hold your TIPS until maturity so don't even look at the prices. But if you must, then you have to understand the prices.

Right now, all of the 2027 TIPS are priced at a discount. By definition, you will never see that discounted price realized if you hold the bond until maturity. At maturity if you will have not only have par value, but par value multiplied by the inflation factor. The only times that discounted price will come into play is if you sell before maturity and when factoring in your next year's RMD calculation (assuming that you hold those TIPS in your IRA).

bd7 · Post by **bd7** » Sun Sep 17, 2023 4:20 pm

#Cruncher wrote: ↑Sun Sep 17, 2023 3:42 pm I compute a slightly better gain of $2.80 (per $100 of face value) as shown in cell D18 below.

RIght you are! My original purchase price on 10/20/22 was 99.5468, but that included some accrued interest. So 99.49 not 99.80 and there's the 0.31 difference.

Perhaps the OP can post one of his examples and let you crunch it so he can stop despairing.

bd7 · Post by **bd7** » Sun Sep 17, 2023 4:29 pm

Jaylat wrote: ↑Sun Sep 17, 2023 4:06 pm If you are positive that Fidelity includes the inflation adjustment then they do use a different calculation.

As I just confirmed with #Cruncher, I looked up what I paid and it was 99.5468 with a small amount of accrued interest which results in price of 99.4933, yet Fidelity shows my current cost basis as 102.5898. I don't see how else you get there.

Always passive · Post by **Always passive** » Sun Sep 17, 2023 11:13 pm

I post my ladder. It is composed of 80,000 TIPS bonds from 2027 to 2031 and the last 2 year, 2032 and 2033, I bought much more, since there was a big gap from 2034. Here they are, exactly as shown at Fidelity where I bought them at different times in the secondary market:
Symbol Description Quantity Current Value Cost Basis Total

912828V49 US Treas NTS TIPS 0.375% 01/15/2027 80000 94,609.43 98,961.64
9128283R9 US Treas NTS TIPS 0.500% 01/15/2028 80000 91,969.78 97,591.19
9128285W6 US Treas NTS TIPS 0.875% 01/15/2029 80000 90,681.34 98,200.46
912828Z37 US Treas NTS TIPS 0.125% 01/15/2030 80000 84,006.86 100,810.27
91282CBF7 US Treas NTS TIPS 0.125% 01/15/2031 80000 81,630.62 100,904.86
91282CDX6 US Trea NTS TIPS 0.125% 01/15/2032 197000 185,341.56 200,924.38
91282CGK1 US Trea NTS TIPS 1.125% 01/15/2033 224000 211,829.18 227,574.64

You can see that all them are under water. What am I missing?
BTW, from 2023 to 2026 I have purchased CDs.

Thank you for your help

GettingCloser · Post by **GettingCloser** » Mon Sep 18, 2023 2:31 am

Hi AP -

Here's how to calculate the current real value of the first batch of TIPS in your table (912828V49), assuming that you'll be holding it to maturity (which I'll call "maturity value" for lack of a better term):

Browse to Treasury Direct's CPI data page.
Type the lot's CUSIP number (912828V49) into the box below "Details" and hit Enter, which should narrow the list down to a single row.
Click on the CUSIP number, which should take you to a page labeled "TIPS/CPI Query Results".
Jot down the value of "REF CPI on Dated Date" in the top right box (241.55919 in this case). That's what the CPI was on that date, which you can think of as the "starting CPI" for this particular TIPS issue.
In the table, scroll down to today's date (9/18/2023) and jot down the value of "Ref CPI" for that date (305.43880)
Notice that the value of "Index Ratio" for today (1.26445) is equal to the second value you jotted down divided by the first (305.43880/241.55919).
The current maturity value of that ladder rung is the face value (labeled "Quantity" in your table) times today's index ratio, i.e. $80000 * 1.26445 = $101156.

That "maturity value" represents the amount you would receive at maturity if inflation was zero between now and then (ignoring the coupon payments you'll receive in the interim). Note that it is significantly higher that what Fidelity calls the "Current Value" ($94609.43), which represents roughly what you would receive if you were to sell those TIPS today on the secondary market.

In other words, if you are planning to sell those TIPS *today*, you are indeed underwater. If you're planning to hold them to maturity, you're fine.

Always passive · Post by **Always passive** » Mon Sep 18, 2023 3:35 am

GettingCloser wrote: ↑Mon Sep 18, 2023 2:31 am Hi AP -

Here's how to calculate the current real value of the first batch of TIPS in your table (912828V49), assuming that you'll be holding it to maturity (which I'll call "maturity value" for lack of a better term):

Browse to Treasury Direct's CPI data page.

Type the lot's CUSIP number (912828V49) into the box below "Details" and hit Enter, which should narrow the list down to a single row.

Click on the CUSIP number, which should take you to a page labeled "TIPS/CPI Query Results".

Jot down the value of "REF CPI on Dated Date" in the top right box (241.55919 in this case). That's what the CPI was on that date, which you can think of as the "starting CPI" for this particular TIPS issue.

In the table, scroll down to today's date (9/18/2023) and jot down the value of "Ref CPI" for that date (305.43880)

Notice that the value of "Index Ratio" for today (1.26445) is equal to the second value you jotted down divided by the first (305.43880/241.55919).

The current maturity value of that ladder rung is the face value (labeled "Quantity" in your table) times today's index ratio, i.e. $80000 * 1.26445 = $101156.

That "maturity value" represents the amount you would receive at maturity if inflation was zero between now and then (ignoring the coupon payments you'll receive in the interim). Note that it is significantly higher that what Fidelity calls the "Current Value" ($94609.43), which represents roughly what you would receive if you were to sell those TIPS today on the secondary market.

In other words, if you are planning to sell those TIPS *today*, you are indeed underwater. If you're planning to hold them to maturity, you're fine.

Thank you much

ramram22 · Post by **ramram22** » Mon Sep 18, 2023 3:59 am

This is why I've always said that I bonds are so clearly superior to TIPS. I can't believe so many on here think that a few extra basis points is worth more than all the advantages of I bonds: 1) zero volatility, 2) flexibility to modify withdrawal dates, and 3) deferral of income taxes. Oh well - que sera, sera.

dcabler · Post by **dcabler** » Mon Sep 18, 2023 4:21 am

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am I am retired, 75 years old, relying for retirement funding on SS, two small pension annuities (not inflation linked), and a ladder of individual TIPS (presently 15 years forward). I bought all the TIPS at Fidelity in the secondary market at different times without trying to time the market, meaning during good and bad times, like in the past years.
Instead of feeling assured about my retirement, I am in anguish because all of the TIPS 2027 on (2024-2026 in CDs) are in negative territory, meaning the price I paid for them is higher than the current value, and sometimes 10%+. In the meantime, short term treasuries are yielding 4-5%. Is there anything that I should do, except from doing nothing?

There is always a better investment after you've made one. Just like there is always a portfolio that will outperform the one you have. In either case, you can't know in advance.

Assuming that you were happy with the cash flow you purchased when you purchased that TIPS 2027 bond and that you plan on holding it until maturity, then what's to worry about? That's the beauty of purchasing a TIPS bond and holding it to maturity. You never ever have to be concerned about its market value anymore. So I'd suggest that you just stop monitoring it and enjoy the coupon payments and, eventually, the inflation adjusted return of your principal in 2027.

Cheers.

Always passive · Post by **Always passive** » Mon Sep 18, 2023 4:31 am

ramram22 wrote: ↑Mon Sep 18, 2023 3:59 am This is why I've always said that I bonds are so clearly superior to TIPS. I can't believe so many on here think that a few extra basis points is worth more than all the advantages of I bonds: 1) zero volatility, 2) flexibility to modify withdrawal dates, and 3) deferral of income taxes. Oh well - que sera, sera.

ibonds maybe great but they have investment size limitations.

ScubaHogg · Post by **ScubaHogg** » Mon Sep 18, 2023 4:39 am

Your asset prices are risky, but your real income is riskless. You probably do and should care more about the latter

dcabler · Post by **dcabler** » Mon Sep 18, 2023 4:46 am

Always passive wrote: ↑Mon Sep 18, 2023 4:31 am
ramram22 wrote: ↑Mon Sep 18, 2023 3:59 am This is why I've always said that I bonds are so clearly superior to TIPS. I can't believe so many on here think that a few extra basis points is worth more than all the advantages of I bonds: 1) zero volatility, 2) flexibility to modify withdrawal dates, and 3) deferral of income taxes. Oh well - que sera, sera.
ibonds maybe great but they have investment size limitations.

There are ways around that, of course. But more importantly, actual TIPS bonds' purpose is to create an inflation adjusted income stream via coupon payments followed inflation adjusted return of principal.

I-bonds purpose is to store and accrue value, in inflation adjusted terms, for up to 30 years.

Now you can try and make TIPS store value by creating a rolling ladder & reinvesting distributions or purchase a fund that does that. But you do that with interest rate/reinvestment risk and you may have to wait till that increase in value shows up.

And you can have I-bonds create an inflation adjusted income stream up to 30 years if you want, subject to having to wait 1 year and forgoing 3 months of interest if you redeem before 5 years. And if rates get better, you can redeem and repurchase. But you then run into the limits again which unfortunately aren't inflation adjusted themselves. Again, there are ways around that if you're willing.

But if you purchase actual TIPS bonds and fully intend to hold them to maturity, then why are you even looking at their market value along the way unless you have some sort of emergency that requires an early sale?

Cheers.

jebmke · Post by **jebmke** » Mon Sep 18, 2023 7:20 am

ramram22 wrote: ↑Mon Sep 18, 2023 3:59 am This is why I've always said that I bonds are so clearly superior to TIPS. I can't believe so many on here think that a few extra basis points is worth more than all the advantages of I bonds: 1) zero volatility, 2) flexibility to modify withdrawal dates, and 3) deferral of income taxes. Oh well - que sera, sera.

IBonds don’t scale

#Cruncher · Post by **#Cruncher** » Mon Sep 18, 2023 9:20 am

Always passive wrote: ↑Sun Sep 17, 2023 11:13 pm I post my ladder. It is composed of 80,000 TIPS bonds from 2027 to 2031 and the last 2 year, 2032 and 2033, ... Here they are, exactly as shown at Fidelity where I bought them at different times in the secondary market:
[see revised table below]
You can see that all them are under water. What am I missing?

Here is your table, Always passive, formatted with added columns for Index Ratio, Indexed Principal, & Price, and a Total row.( I calculated the "Indexed Principal" column as explained by GettingCloser in this post except I used the index ratios for 9/15/2023 since that's what Fidelity apparently is using -- and I got them from this web page.)

Code: Select all

                                                        Total    Index
                                 Face     Current        Cost    Ratio  Indexed
    CUSIP  Coupon    Matures    Value       Value       Basis  9/15/23    Princ   Price
---------  ------  ---------  -------  ----------  ----------  -------  -------  ------
912828V49  0.375%  1/15/2027   80,000   94,609.43   98,961.64  1.26421  101,137  93.546
9128283R9  0.500%  1/15/2028   80,000   91,969.78   97,591.19  1.23803   99,042  92.859
9128285W6  0.875%  1/15/2029   80,000   90,681.34   98,200.46  1.20942   96,754  93.724
912828Z37  0.125%  1/15/2030   80,000   84,006.86  100,810.27  1.18694   94,955  88.470
91282CBF7  0.125%  1/15/2031   80,000   81,630.62  100,904.86  1.17311   93,849  86.981
91282CDX6  0.125%  1/15/2032  197,000  185,341.56  200,924.38  1.10165  217,025  85.401 <---
91282CGK1  1.125%  1/15/2033  224,000  211,829.18  227,574.64  1.02519  229,643  92.243
                              -------  ----------  ----------           -------
    Total                     821,000  840,068.77  924,967.44           932,404

You apparently are considering the difference between what Fidelity reports as "Current Value" and "Total Cost Basis" as the measure of loss or being "under water". But as bd7 and Jaylat have explained above, this isn't a good measure of loss. I found an old post of yours where you state what you paid on a purchase of the Jan 2032 maturity. Using that information for the entire $197,000 face value shown in your table, I calculate a loss of $6,900 in cell D20 below. This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.

Code: Select all

Row               Col A         Col B       Col C         Col D   Formula in Column B
  2          Face value       197,000
  3            Maturity     1/15/2032
  4              Coupon        0.125%
  5                            Bought        Sold
  6                Date     6/17/2022   9/15/2023
  7               Price        93.992      85.401
  8   Yield to maturity        0.777%      2.039%                =YIELD(B6,$B3,$B4,B7,100,2,1)
  9  Prev interest date     1/15/2022   7/15/2023                =COUPPCD(B6,$B3,2,1)
 10  Next interest date     7/15/2022   1/15/2024                =COUPNCD(B6,$B3,2,1)
 11      Days in period           181         184                =B10-B9
 12  Days before settle           153          62                =B6-B9
 13    Accrued interest       104.078      41.488                =$B2*($B4/2)*(B12/B11)

Code: Select all

 14                Date        Real $   Idx Ratio     Indexed $
 15           6/17/2022  -185,268.318     1.04025  -192,725.368  =-(B2*(B7/100)+B13)
 16           7/15/2022       123.125     1.04814       129.052  =B$2*(B$4/2)
 17           1/15/2023       123.125     1.07458       132.308   | | |
 18           7/15/2023       123.125     1.09562       134.898   v v v
 19           9/15/2023   168,281.458     1.10165   185,387.268  =B2*(C7/100)+C13
 20         Gain/(Loss)   -16,617.485                -6,941.842  =SUM(B15:B19)
 21    Annual Pct Yield       -7.269%                   -2.903%  =XIRR(B15:B19,$A15:$A19)

The above calculation is similar to that in my previous post. Index ratios in cells C15:C19 are available from this TreasuryDirect TIPS/CPI Query Results page -- or the bottom section of this web page for the ones on interest payment dates.

stevewolfe · Post by **stevewolfe** » Mon Sep 18, 2023 9:25 am

jebmke wrote: ↑Mon Sep 18, 2023 7:20 am IBonds don’t scale

This is 100% true. However, with planning, they can work for a lot of folks. For example, a couple can purchase $20,000 per year ($10,000 each). With a little extra effort, they can purchase an additional $5,000 per year as part of their tax return. With a little extra effort (and minimal cost for a product like Nolo Willmaker + notary fees), they can purchase an additional $20,000 per year ($10,000 each) in trusts. This is $45,000 per year total. If a very attractive fixed rate comes along, they can purchase additional years at $20,000 per each future year ($10,000 each as their individual, non-trust allocation) in a gift box for delivery in future years - effectively "pulling forward" part of their future annual allotment into the current year window to maximize an attractive fixed rate.

So, as shown above, you can actually accumulate a good bit in I-Bonds if you're committed to them over time and willing to do some extra work. You can't decide to shift a meaningful portion of your portfolio to them at one time like you can with TIPS (for example) due to the limits / scale factor. But if you decide I-Bonds work for you, and you have time to plan for accumulation of them, you do have the opportunity to accumulate a goodly number of them over time.

Steve

dbr · Post by **dbr** » Mon Sep 18, 2023 9:42 am

stevewolfe wrote: ↑Mon Sep 18, 2023 9:25 am
jebmke wrote: ↑Mon Sep 18, 2023 7:20 am IBonds don’t scale
This is 100% true. However, with planning, they can work for a lot of folks. For example, a couple can purchase $20,000 per year ($10,000 each). With a little extra effort, they can purchase an additional $5,000 per year as part of their tax return. With a little extra effort (and minimal cost for a product like Nolo Willmaker + notary fees), they can purchase an additional $20,000 per year ($10,000 each) in trusts. This is $45,000 per year total. If a very attractive fixed rate comes along, they can purchase additional years at $20,000 per each future year ($10,000 each as their individual, non-trust allocation) in a gift box for delivery in future years - effectively "pulling forward" part of their future annual allotment into the current year window to maximize an attractive fixed rate.

So, as shown above, you can actually accumulate a good bit in I-Bonds if you're committed to them over time and willing to do some extra work. You can't decide to shift a meaningful portion of your portfolio to them at one time like you can with TIPS (for example) due to the limits / scale factor. But if you decide I-Bonds work for you, and you have time to plan for accumulation of them, you do have the opportunity to accumulate a goodly number of them over time.

Steve

This is accurate. Now that there is no longer a windfall 8%-9% nominal interest rate I think very few investors are going to such lengths as described above, as they didn't when inflation and interest rates were low. What is still missing is windfall fixed rates north of 2%.

Drew31 · Post by **Drew31** » Mon Sep 18, 2023 9:43 am

Can't find where I read it upthread about TIPS value at maturity, but it's simply PAR * Inflation Factor, correct?

Always passive · Post by **Always passive** » Mon Sep 18, 2023 9:53 am

#Cruncher wrote: ↑Mon Sep 18, 2023 9:20 am
Always passive wrote: ↑Sun Sep 17, 2023 11:13 pm I post my ladder. It is composed of 80,000 TIPS bonds from 2027 to 2031 and the last 2 year, 2032 and 2033, ... Here they are, exactly as shown at Fidelity where I bought them at different times in the secondary market:
[see revised table below]
You can see that all them are under water. What am I missing?
Here is your table, Always passive, formatted with added columns for Index Ratio, Indexed Principal, & Price, and a Total row.( I calculated the "Indexed Principal" column as explained by GettingCloser in this post except I used the index ratios for 9/15/2023 since that's what Fidelity apparently is using -- and I got them from this web page.)
Code: Select all
                                                        Total    Index
                                 Face     Current        Cost    Ratio  Indexed
    CUSIP  Coupon    Matures    Value       Value       Basis  9/15/23    Princ   Price
---------  ------  ---------  -------  ----------  ----------  -------  -------  ------
912828V49  0.375%  1/15/2027   80,000   94,609.43   98,961.64  1.26421  101,137  93.546
9128283R9  0.500%  1/15/2028   80,000   91,969.78   97,591.19  1.23803   99,042  92.859
9128285W6  0.875%  1/15/2029   80,000   90,681.34   98,200.46  1.20942   96,754  93.724
912828Z37  0.125%  1/15/2030   80,000   84,006.86  100,810.27  1.18694   94,955  88.470
91282CBF7  0.125%  1/15/2031   80,000   81,630.62  100,904.86  1.17311   93,849  86.981
91282CDX6  0.125%  1/15/2032  197,000  185,341.56  200,924.38  1.10165  217,025  85.401 <---
91282CGK1  1.125%  1/15/2033  224,000  211,829.18  227,574.64  1.02519  229,643  92.243
                              -------  ----------  ----------           -------
    Total                     821,000  840,068.77  924,967.44           932,404
You apparently are considering the difference between what Fidelity reports as "Current Value" and "Total Cost Basis" as the measure of loss or being "under water". But as bd7 and Jaylat have explained above, this isn't a good measure of loss. I found an old post of yours where you state what you paid on a purchase of the Jan 2032 maturity. Using that information for the entire $197,000 face value shown in your table, I calculate a loss of $6,900 in cell D20 below. This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.
Code: Select all
Row               Col A         Col B       Col C         Col D   Formula in Column B
  2          Face value       197,000
  3            Maturity     1/15/2032
  4              Coupon        0.125%
  5                            Bought        Sold
  6                Date     6/17/2022   9/15/2023
  7               Price        93.992      85.401
  8   Yield to maturity        0.777%      2.039%                =YIELD(B6,$B3,$B4,B7,100,2,1)
  9  Prev interest date     1/15/2022   7/15/2023                =COUPPCD(B6,$B3,2,1)
 10  Next interest date     7/15/2022   1/15/2024                =COUPNCD(B6,$B3,2,1)
 11      Days in period           181         184                =B10-B9
 12  Days before settle           153          62                =B6-B9
 13    Accrued interest       104.078      41.488                =$B2*($B4/2)*(B12/B11)
Code: Select all
 14                Date        Real $   Idx Ratio     Indexed $
 15           6/17/2022  -185,268.318     1.04025  -192,725.368  =-(B2*(B7/100)+B13)
 16           7/15/2022       123.125     1.04814       129.052  =B$2*(B$4/2)
 17           1/15/2023       123.125     1.07458       132.308   | | |
 18           7/15/2023       123.125     1.09562       134.898   v v v
 19           9/15/2023   168,281.458     1.10165   185,387.268  =B2*(C7/100)+C13
 20         Gain/(Loss)   -16,617.485                -6,941.842  =SUM(B15:B19)
 21    Annual Pct Yield       -7.269%                   -2.903%  =XIRR(B15:B19,$A15:$A19)
The above calculation is similar to that in my previous post. Index ratios in cells C15:C19 are available from this TreasuryDirect TIPS/CPI Query Results page -- or the bottom section of this web page for the ones on interest payment dates.

Thank you so much. Always so useful!

bd7 · Post by **bd7** » Mon Sep 18, 2023 10:42 am

This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.

For those of you that don't have Fidelity, they actually post that number in red as the "Total Gain/Loss". For my example, which Cruncher has determined has a net present gain of $2.80, they're showing me a loss of 1.8008. I'm sure this is disheartening for those that don't understand it. I understand it and I still don't like looking at it or worse, showing to DW.

For the OP, Always passive, did you pay more than adjusted par value for these on the secondary market? If not, then your ladder will work out fine even if you are underwater in the interim on a mark-to-market basis. If you did, it may not have been the greatest investment ever, but not nearly as bad as Fidelity is painting it.

Edit: I looked at the post Cruncher linked where you show that you purchased these at roughly 93% of par, with a total adjusted price still less than par. What this means for you is 1) there are no circumstances, including severe prolonged deflation, where you would not make at least some nominal gain when the bond matures in 2032 and 2) it seems very likely that your TIPS purchase will do better than if you had purchased a 10-year nominal treasury at the same time.

jebmke · Post by **jebmke** » Mon Sep 18, 2023 10:51 am

bd7 wrote: ↑Mon Sep 18, 2023 10:42 am
This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.
For those of you that don't have Fidelity, they actually post that number in red as the "Total Gain/Loss". For my example, which Cruncher has determined has a net present gain of $2.80, they're showing me a loss of 1.8008. I'm sure this is disheartening for those that don't understand it. I understand it and I still don't like looking at it or worse, showing to DW.

For the OP, Always passive, did you pay more than adjusted par value for these on the secondary market? If not, then your ladder will work out fine even if you are underwater in the interim on a mark-to-market basis. If you did, it may not have been the greatest investment ever, but not nearly as bad as Fidelity is painting it.

Edit: I looked at the post Cruncher linked where you show that you purchased these at roughly 93% of par, with a total adjusted price still less than par. What this means for you is 1) there are no circumstances, including severe prolonged deflation, where you would not make at least some nominal gain when the bond matures in 2032 and 2) it seems very likely that your TIPS purchase will do better than if you had purchased a 10-year nominal treasury at the same time.

Not at Fidelity but unless I’m searching for losses to harvest I pay no attention to unrealized gains and losses.

goaties · Post by **goaties** » Mon Sep 18, 2023 11:27 am

bd7 wrote: ↑Mon Sep 18, 2023 10:42 am
This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.
For those of you that don't have Fidelity, they actually post that number in red as the "Total Gain/Loss". For my example, which Cruncher has determined has a net present gain of $2.80, they're showing me a loss of 1.8008. I'm sure this is disheartening for those that don't understand it. I understand it and I still don't like looking at it or worse, showing to DW.

Or worse still, Fidelity then has the temerity to total up all of those bogus "valuations" and then posting that as your Big Number at the top of your screen. I have asked that they give us the *option* of displaying (and totaling) the par value of all CDs and Treasuries and so on (since I know I'm never selling on the secondary). That would probably not be really accurate either, but at least it might cause fewer coronaries.

dbr · Post by **dbr** » Mon Sep 18, 2023 12:01 pm

goaties wrote: ↑Mon Sep 18, 2023 11:27 am
bd7 wrote: ↑Mon Sep 18, 2023 10:42 am
This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.
For those of you that don't have Fidelity, they actually post that number in red as the "Total Gain/Loss". For my example, which Cruncher has determined has a net present gain of $2.80, they're showing me a loss of 1.8008. I'm sure this is disheartening for those that don't understand it. I understand it and I still don't like looking at it or worse, showing to DW.
Or worse still, Fidelity then has the temerity to total up all of those bogus "valuations" and then posting that as your Big Number at the top of your screen. I have asked that they give us the *option* of displaying (and totaling) the par value of all CDs and Treasuries and so on (since I know I'm never selling on the secondary). That would probably not be really accurate either, but at least it might cause fewer coronaries.

Experience tends to suggest that if a person wants accurate and properly defined reports of their financial situation, performance, and history that one is better off setting up the data themselves in a spread sheet. At least that way one can post exactly what they want, understand how they got there, and sort through or add whatever is of interest. The downside is that loading the data may or may not be onerous. Of course it goes without saying that one thing you don't do is try to chase down every possible discrepancy between one's own tabulations and some nutty posting one finds online somewhere unless it is a check against an obvious error for something that is well defined.

IDpilot · Post by **IDpilot** » Mon Sep 18, 2023 6:33 pm

Drew31 wrote: ↑Mon Sep 18, 2023 9:43 am Can't find where I read it upthread about TIPS value at maturity, but it's simply PAR * Inflation Factor, correct?

It is that or PAR, whichever is greater.

IDpilot · Post by **IDpilot** » Mon Sep 18, 2023 6:35 pm

Always passive wrote: ↑Sun Sep 17, 2023 8:27 am Is there anything that I should do, except from doing nothing?

Yep ... stop logging into your account and don't open your statements if you still get them via the mail. Spend all that time you save enjoying life!

martincmartin · Post by **martincmartin** » Tue Sep 19, 2023 10:14 am

The reason to buy a liability matching portfolio, a non-rolling TIPS ladder, is so that the prices of TIPS don't matter at all to you. You're guaranteed a certain real dollar amount each year. Who cares whether someone starting today could get the same thing cheaper.

Suppose you buy a new dishwasher, along with a 10 year service plan. That way, even if the price of dishwashers goes through the roof, and yours breaks down, you're covered by the service plan. Suppose, a little while after you buy it, it goes on sale. This means, someone else buying the same dishwasher with the same 10 year service plan would pay less than you. Why do you care? Why would that give you anguish? Prices go up and down all the time. So you didn't buy at the absolute bottom of the market. You bought 10 years worth of dishwashing for a price you considered fair at the time. Who cares that prices went down?

It's the same with the non-rolling TIPS ladder. You bought known real (inflation adjusted) future income at a certain price, and you considered it a worthy transaction at the time. Who cares that someone today can buy the same thing for cheaper? So, you didn't buy at the absolute bottom of the market. Why does that cause anguish?

tl;dr: the point of buying a non-rolling TIPS ladder as a LMP is so that market prices are irrelevant. So you'll be better off to not even look at those prices, which are irrelevant to you.

Lyrrad · Post by **Lyrrad** » Tue Sep 19, 2023 7:20 pm

ramram22 wrote: ↑Mon Sep 18, 2023 3:59 am This is why I've always said that I bonds are so clearly superior to TIPS. I can't believe so many on here think that a few extra basis points is worth more than all the advantages of I bonds: 1) zero volatility, 2) flexibility to modify withdrawal dates, and 3) deferral of income taxes. Oh well - que sera, sera.

There's a large gap between the current fixed rate (0.9%) and the yield available at many points of the curve (2.0%+). The significantly higher yield may outweigh the disadvantages for some people.

Always passive wrote: ↑Mon Sep 18, 2023 4:31 am ibonds maybe great but they have investment size limitations.

If I need to, I'll just open as many trusts as I want and buy $10K a year in each.

I think there's some arbitrage opportunities that may be available by having the option to switch between TIPS and I Bonds, if you ignore taxes and transaction costs. If TIPS real yields fall below zero again, I'd strongly consider selling them at a large profit in my tax-advantaged accounts and buy the higher yielding (0% fixed rate) I Bonds as replacement.

JayB · Post by **JayB** » Wed Sep 20, 2023 2:16 am

goaties wrote: ↑Mon Sep 18, 2023 11:27 am
bd7 wrote: ↑Mon Sep 18, 2023 10:42 am
This isn't as bad as the $15,600 difference between the "Current Value" and "Cost Basis" shown by Fidelity.
For those of you that don't have Fidelity, they actually post that number in red as the "Total Gain/Loss". For my example, which Cruncher has determined has a net present gain of $2.80, they're showing me a loss of 1.8008. I'm sure this is disheartening for those that don't understand it. I understand it and I still don't like looking at it or worse, showing to DW.
Or worse still, Fidelity then has the temerity to total up all of those bogus "valuations" and then posting that as your Big Number at the top of your screen. I have asked that they give us the *option* of displaying (and totaling) the par value of all CDs and Treasuries and so on (since I know I'm never selling on the secondary). That would probably not be really accurate either, but at least it might cause fewer coronaries.

The red ink displayed for bond losses at Fidelity used to annoy me for my hold-to-maturity long bond ladders. However, I've realized that mark-to-market accounting is unnecessary for individual investors who plan on holding their bonds to maturity, even though mark-to-market is required for many organizations and brokerage firms.

That red ink can be reminder that we are imperfect and out-of-control of the market and that there will probably always be better purchase opportunities at some point after we have already committed $ to bond purchases. As a practical matter, in the rear-view mirror, I see that I could theoretically have timed many of my Treasury purchases to garner an extra 50-100 bp per year of yield, but the extra $500-1000 of annual pre-tax income per $100K invested would make no discernable difference in my lifestyle or financial security -- the hypothetical difference is all psychological and I choose not to feel badly or shamed by the red ink. I think that the red ink is most likely to bother perfectionists or those who are not totally committed about holding to maturity.

It is also worthy of note that the red ink will often appear on Fidelity even for a bond one has just purchased and that has not declined in price at all due to the way that Fidelity arrives at the "Last Price." The Last Price will typically be somewhere between the current bid and ask price. For thinly traded and/or long-maturity bonds (especially zero-coupon bonds), the Last Price can be dramatically below the Ask price if the bond were to be purchased today.

PS On Fidelity, I have turned on "Hide Balances" under Account Display Preferences (gear symbol) on the Summary Page so that I'm not greeted by meaningless aggregate gain/loss numbers upon logging in. I also try not to unnecessarily view the Positions page with all the red ink.

kxl19 · Post by **kxl19** » Thu Sep 21, 2023 9:18 pm

I'm trying to understand whether Etrade is correctly showing the market value of this 10-year TIP (Jan 15 2033): 91282CGK1, with a 1.125% coupon. Market value is "negative".

I bought at 98.224 on 5/30/2023.

As of today, 9/21/2023, Etrade shows 94.5

WSJ page shows 91 and 8/32 = 91.25

Which is correct? How do I know if this is including the principal adjustments?