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Follower ○○

Curious about TIPS

I'm seeing several articles recommending them while they're cheap and in anticipation of inflation.  Curious about what others here think.  I have too much cash now but trying to stay conservative at age 82.  Other holdings are SPY, VIG, MSFT, GLD TLT EPD and a substantial weighting of CHS Inc (Commodities) preferreds paying 7%, callable in 23.

   

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Frequent Contributor

Re: Curious about TIPS

TIPS come in when interest rates are rising and especially when inflation leads interest rates. Right now,  interests rates, likely to remain low and higher prices on goods not just a function of inflation.  It seems to me you would do better with higher quality bonds. I hold mainly A rated and above bond funds currently and going forward. 

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Re: Curious about TIPS


@FatKat wrote:

TIPS come in when interest rates are rising and especially when inflation leads interest rates. Right now,  interests rates, likely to remain low and higher prices on goods not just a function of inflation.  It seems to me you would do better with higher quality bonds. I hold mainly A rated and above bond funds currently and going forward. 


Only reason to buy tips is when inflation is moving up and will result in an increase in interest rates. Given that fed has promised to keep interest rate at 0 until 2022 tips will not be a good investment.

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Participant ○○○

Re: Curious about TIPS

TIPS have a slightly better REAL yield vs equivalent nominal US Treasuries. USD inflation expectations are so low today that the US govt PAYS us to take its unexpected inflation insurance via the TIPS. Before we had to BUY it.

Our FI = 30% TIPS + 30% US Treas + 30% Corp Bonds + 10% CASH.

 

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Participant ○

Re: Curious about TIPS

Tips are indeed looking attractive again as a hedge. I wish I had bought some a few months back. Now money is flocking into TIPS raising the price with a negative YTM for the 10 year tips. Despite all that, the break even inflation is so low that I believe TIPS will win out. I am waiting for the August 30 year auction in the hopes the price above par will drop a bit.

 

PS make sure and do your I Bond allotment first

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Frequent Contributor

Re: Curious about TIPS

TIPS=Treasury Inflation-Protected Security.

Are we going to have inflation in the next 12 months? no and why you should not invest in TIPS.

Instead, why not use BIV(link) which is Vanguard ETF that invests about 50/50 Corp/Gov high rated bonds.

===============

BTW, why EPD and a substantial weighting of CHS at age 82?

SPY have been doing much better than EPD(chart).  

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Explorer ○○○

Re: Curious about TIPS

I've been investing in TIPS for 10+ years...and waiting for the "inflation protection" part for just as long.

It's yet another hedge for a low-likelihood situation, like holding 20+ year treasuries--which paid off in March.  TIPS can also get slammed by rising interest rates, so you might want to consider something like STIP to reduce interest rate risk.

Will we have inflation?  Since every expert seems to think we will, we probably won't.

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Re: Curious about TIPS


@unbiased2020 wrote:

I've been investing in TIPS for 10+ years...and waiting for the "inflation protection" part for just as long.

It's yet another hedge for a low-likelihood situation, like holding 20+ year treasuries--which paid off in March.  TIPS can also get slammed by rising interest rates, so you might want to consider something like STIP to reduce interest rate risk.

Will we have inflation?  Since every expert seems to think we will, we probably won't.


Inflation is a creature of the past invented by economists to provide for their full employment. In June 2006 fed raised its funds rate to 5.25%. By December 2008 the fed rate was 0 and inflation blipped off the screen when 0 fed rate continued until December 2015. Fed briefly raised Rate to 2.5% before lowering it to 0 in March where it will stay for 5 years or more. Fed tried unsuccessfully to raise inflation to 2% from 2012 to 2020. Today its 1.3%.

I have never believed it would be profitable to invest in inflation and never understood why rational investors would buy bonds pegged to future inflation when 25% of global fixed income has a negative rate of return. I get better yields 3-4x+ the inflation rate on dividend stocks which are taxed at 0 or 15%.

Second reason why inflation will be non existent is that In the post covid 19 world  there will be a lot of unemployed workers looking for jobs at minimum wage while corporations like AMZN and WMT keep increasing productivity to keep prices low.

Only people who will make money from inflation will be the economists who are paid to calculate its low rate.

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Re: Curious about TIPS


@Intruder wrote:

@unbiased2020 wrote:

I've been investing in TIPS for 10+ years...and waiting for the "inflation protection" part for just as long.

It's yet another hedge for a low-likelihood situation, like holding 20+ year treasuries--which paid off in March.  TIPS can also get slammed by rising interest rates, so you might want to consider something like STIP to reduce interest rate risk.

Will we have inflation?  Since every expert seems to think we will, we probably won't.


Inflation is a creature of the past invented by economists to provide for their full employment. In June 2006 fed raised its funds rate to 5.25%. By December 2008 the fed rate was 0 and inflation blipped off the screen when 0 fed rate continued until December 2015. Fed briefly raised Rate to 2.5% before lowering it to 0 in March where it will stay for 5 years or more. Fed tried unsuccessfully to raise inflation to 2% from 2012 to 2020. Today its 1.3%.

I have never believed it would be profitable to invest in inflation and never understood why rational investors would buy bonds pegged to future inflation when 25% of global fixed income has a negative rate of return. I get better yields 3-4x+ the inflation rate on dividend stocks which are taxed at 0 or 15%.

Second reason why inflation will be non existent is that In the post covid 19 world  there will be a lot of unemployed workers looking for jobs at minimum wage while corporations like AMZN and WMT keep increasing productivity to keep prices low.

Only people who will make money from inflation will be the economists who are paid to calculate its low rate.


+1

Many investors read several articles/books and just because it was true 10-15 years ago it doesn't mean it's always true.

The Fed changed the narrative since 2008-9 with massive support.  The Dollar stayed strong and why US LC were the best and why diversification globally and small cap didn't do as well.  

But hey, even Gundlach the bond "king" was wrong big time.  He predicted the 10-year treasury to be at 6% by 2021(link) and right now it's under 0.6% (90% lower)

I was never impressed by Bernstein who recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets.  No stocks at all.  This should be in TIPS, SPIAs, and short-term bonds.  If you have more than that, that’s your “risk portfolio,” Sure, that's great but how many investors have that and what should you do if you don't?  What if you have just 15 times? Bernstein will tell you to keep working...ridiculous.

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