Buying treasuries - Nominal or TIPS?

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Parkinglotracer
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Buying treasuries - Nominal or TIPS?

Post by Parkinglotracer »

I have 35% of our 3 fund portfolio in a 5 year Nominal Treasury Bond Ladder vs BND. I like the transparency of individual bonds. I want to make sure I understand TIPS as well as I understand nominal Bonds before I jump in. Based upon the comments here in the forum, I am considering expanding my ladder to include buying individual TIPS. Is there a general rule of thumb as to when it may be better to buy a nominal bond or TIPS? Any general guidelines on how to buy the best yielding TIPS thru vanguard? I assume it’s best to buy them in tax deferred accounts to simplify tax reporting. I assume Will TIPS fluctuate in value the same as a nominal bond based upon interest rate changes and in addition fluctuate based upon inflation expectations.

Thank you.
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Re: Buying treasuries - Nominal or TIPS?

Post by LadyGeek »

This thread is now in the Personal Investments forum (portfolio help for a bond purchase).

(Thanks to the member who reported the post and explained what's wrong.)
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v42
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Re: Buying treasuries - Nominal or TIPS?

Post by v42 »

Parkinglotracer wrote: Fri Feb 09, 2024 6:05 am I Is there a general rule of thumb as to when it may be better to buy a nominal bond or TIPS?
A rule of thumb is to match nominal future liabilities (e.g., estimated tax payments or loan balance) with nominal treasuries and to match future real liabilities (e.g., personal expenses) with TIPS.

For a long-term retirement portfolio without specific liabilities, I don't think there's a specific recommendation. Many people split 50-50 or so to minimize regret in case of inflation expectations turning out to be wildly off in either direction.
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Parkinglotracer
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Re: Buying treasuries - Nominal or TIPS?

Post by Parkinglotracer »

v42 wrote: Fri Feb 09, 2024 9:27 am
Parkinglotracer wrote: Fri Feb 09, 2024 6:05 am I Is there a general rule of thumb as to when it may be better to buy a nominal bond or TIPS?
A rule of thumb is to match nominal future liabilities (e.g., estimated tax payments or loan balance) with nominal treasuries and to match future real liabilities (e.g., personal expenses) with TIPS.

For a long-term retirement portfolio without specific liabilities, I don't think there's a specific recommendation. Many people split 50-50 or so to minimize regret in case of inflation expectations turning out to be wildly off in either direction.
Thank you … I’ll try a few and see if I like ‘em.
hudson
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Re: Buying treasuries - Nominal or TIPS?

Post by hudson »

Parkinglotracer wrote: Fri Feb 09, 2024 6:05 am I have 35% of our 3 fund portfolio in a 5 year Nominal Treasury Bond Ladder vs BND. I like the transparency of individual bonds. I want to make sure I understand TIPS as well as I understand nominal Bonds before I jump in. Based upon the comments here in the forum, I am considering expanding my ladder to include buying individual TIPS. Is there a general rule of thumb as to when it may be better to buy a nominal bond or TIPS? Any general guidelines on how to buy the best yielding TIPS thru vanguard? I assume it’s best to buy them in tax deferred accounts to simplify tax reporting. I assume Will TIPS fluctuate in value the same as a nominal bond based upon interest rate changes and in addition fluctuate based upon inflation expectations.

Thank you.
Transparency of individual treasuries: I like individuals better as I hold TIPS and nominals to maturity. Treasury funds are buying and selling constantly; so their deal is in flux.

Understanding TIPS: I've been trying to do that for years; I'm still learning. I thought that I knew individual TIPS until I owned some. Now I understand more. I'll likely never be on the kevinm level of understanding. I started by buying ten $1000 nominals and TIPS; I held them for a week and sold them all. I bought by auction and on the secondary market. I bought long and short. It was a great education.

Best yielding at Vanguard? That depends on inflation and interest rates. I don't know if you can pick best yielding. You already know that you are going to get "real," at maturity. That's the key. Nothing else does that. I bought a ten year TIPS a month ago at auction paying 1.750% interest. That was the best available at auction at the time. Secondary market purchases are more of a mystery to me, but I understand that the secondary market is honest and fair and you won't take a haircut.

TIPS fluctuate? No doubt about it. Hold to maturity and you are good. If you have to sell early, the secondary market is OK.

TIPS in tax deferred? That's debatable. It probably depends. In my tax deferred, I'm going all TIPS. I won't hesitate to buy lots of TIPS in taxable. I believe that the brokerage will accurately report income. I'll just download the form to my tax software and go with it. Idiot-proof? probably.
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Re: Buying treasuries - Nominal or TIPS?

Post by Parkinglotracer »

hudson wrote: Sun Feb 11, 2024 7:18 am
Parkinglotracer wrote: Fri Feb 09, 2024 6:05 am I have 35% of our 3 fund portfolio in a 5 year Nominal Treasury Bond Ladder vs BND. I like the transparency of individual bonds. I want to make sure I understand TIPS as well as I understand nominal Bonds before I jump in. Based upon the comments here in the forum, I am considering expanding my ladder to include buying individual TIPS. Is there a general rule of thumb as to when it may be better to buy a nominal bond or TIPS? Any general guidelines on how to buy the best yielding TIPS thru vanguard? I assume it’s best to buy them in tax deferred accounts to simplify tax reporting. I assume Will TIPS fluctuate in value the same as a nominal bond based upon interest rate changes and in addition fluctuate based upon inflation expectations.

Thank you.
Transparency of individual treasuries: I like individuals better as I hold TIPS and nominals to maturity. Treasury funds are buying and selling constantly; so their deal is in flux.

Understanding TIPS: I've been trying to do that for years; I'm still learning. I thought that I knew individual TIPS until I owned some. Now I understand more. I'll likely never be on the kevinm level of understanding. I started by buying ten $1000 nominals and TIPS; I held them for a week and sold them all. I bought by auction and on the secondary market. I bought long and short. It was a great education.

Best yielding at Vanguard? That depends on inflation and interest rates. I don't know if you can pick best yielding. You already know that you are going to get "real," at maturity. That's the key. Nothing else does that. I bought a ten year TIPS a month ago at auction paying 1.750% interest. That was the best available at auction at the time. Secondary market purchases are more of a mystery to me, but I understand that the secondary market is honest and fair and you won't take a haircut.

TIPS fluctuate? No doubt about it. Hold to maturity and you are good. If you have to sell early, the secondary market is OK.

TIPS in tax deferred? That's debatable. It probably depends. In my tax deferred, I'm going all TIPS. I won't hesitate to buy lots of TIPS in taxable. I believe that the brokerage will accurately report income. I'll just download the form to my tax software and go with it. Idiot-proof? probably.
Thank you - a few variables - lol - but I have the rest of my life to figure it out! Thank you … makes sense I think.
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