Comments on: Individual TIPS Or TIPS Mutual Fund

By: TFB

TFB — Wed, 19 Aug 2009 19:33:40 +0000

Walter - If you are paying a financial advisor, you should ask him/her these questions. No, I'm not joking. That's what a financial advisor is for, right? He/she should explain to you why he/she is making that recommendation and how the recommended product works. TIPS and CDs work differently. TIPS bonds and TIPS funds also work differently. Don't invest in something you don't understand. If your advisor cannot explain these to you, you shouldn't work with him or her. I have more articles about TIPS on my bonds site Explore Bonds if you are interested in learning more yourself. But seriously, ask your financial advisor and get your money's worth.

By: Walter Degler

Walter Degler — Wed, 19 Aug 2009 17:48:25 +0000

I have a 4.25% CD about to mature. My financial advisor says that at this time, investing in TIPS is better than in CDs. Don't both have similar penalties if withdrawn before the maturity date? How does one invest in TIPS anyway? He suggested I put half in VIPSX and half in PIMCO. Should I? How do I proceed?

By: TFB

TFB — Thu, 23 Jul 2009 18:17:33 +0000

Oleg - VIPSX is composed of TIPS, not regular bonds. What made you think it is based on regular bonds? The fund's holdings show 25 TIPS.

By: Oleg Orel

Oleg Orel — Thu, 23 Jul 2009 17:44:25 +0000

I checked what VIPSX is composed of, and very confused: Why VIPSX based on regular bonds rather than TIPS?

Does TIPS-only mutual funds exists? If so, does Fidelity have one?

By: nrrrvs

nrrrvs — Fri, 13 Mar 2009 17:58:38 +0000

i believe you are understating the second advantage of being able to target maturities

for tax efficiency, you should be holding tips in retirement account.

if you are 20yrs+ out from retirement, there is little reason to own 3/5/7 maturies etc that you will get with a fund, you should be heavy in the long end.

By: Bozo

Bozo — Tue, 03 Mar 2009 22:06:23 +0000

Here's a copy of a query I posted on the Bogleheads forum today (March 3, 2009). A poster there suggested I paste it here, since someone here might have information for me. The general subject matter is "TIPS versus CDs".

"As an additional comment/query on this thread. I don't believe I have ever seen a study of how a ten-year CD ladder (with those CD rates being at "most advantageous" for each year of the ladder) has ompared to other federally insured (i.e., no risk) products, i.e., T bills, TIPS, I Bonds in a ladder of the same ten-year period. Specifically, if an investor bought 10 $50,000 CDs, one each year, would he or she have done better or worse than another investor doing the same, but with TIPS. I know the kicker is did the first person get a "premium" rate for any or all of those CDs by rate-shopping, so that's why I used the phrase "most advantageous" rather than "highest possible". A related question would be whether, on any given day, the net real return on TIPS is below, at, or above the "most advantageous" CD rate.

Anybody have any info, links, guidance. As I mentioned, I get confused when I read all the information about stuff other than CDs. My current ten-year ladder averages 5.45%. Could I have done better with TIPS? I'm really curious, since I have a rather substantial rung of my ladder coming due thus August and am trying to figure out whether to move it to PenFed in a long-term (but accessible – for folks over 59 1/2) CD or back to Vanguard into a TIPS (or similar) product.

TIA, Bozo

PS: I should add that I have read (several times) the TreasuryDirect detailed explanation on TIPS. Since liquidity is important to me, I am concerned that fees buying and selling on the secondary market might eat into yield. The more I read, the less I know, and all that."

By: TFB

TFB — Wed, 10 Dec 2008 18:48:31 +0000

zanon – That's correct.

By: zanon

zanon — Wed, 10 Dec 2008 17:58:22 +0000

TFB: that makes sense, thanks for your help.

Ignoring taxes and inflation, if you plan on holding to maturity, does it make sense just to buy the bond directly then (and essentially treat it as a long term CD). I guess the risk you would run if you need to sell it sooner than maturity is that it's selling for less than you paid for it, so you lose $ just as you would lose $ in a bond fund.

Is that right?

By: TFB

TFB — Wed, 10 Dec 2008 16:27:31 +0000

zanon – You lock into a rate if you hold on the bond until it matures. You can lose money in a bond fund like the Vanguard TIPS fund which never matures. You can also lose money in a bond before it matures even if you locked into a rate. So if you buy a 3-year bond, you can lose money in years 1 and 2, and make money in year 3 to make it positive overall. And that's all before taxes and inflation of course. After taxes and inflation, you can lose money even if you hold the bond to maturity.

By: zanon

zanon — Wed, 10 Dec 2008 02:26:14 +0000

TFB:

I hear what you say. I guess I thought that when you buy a bond, you get locked into a rate, or something. I was not anticipating this degree of volatility. Clearly I don't understand investing in fixed income.

I guess that if I buy Treasuries now, given that they are in such high demand, if demand slackens I will lose money there too, I won't just keep my principal and get the 0.004% or whatever they are yielding there days.