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TIPS to hedge against inflation? Is TIPS worthwhile to have in bond?

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  • triad
    replied
    Originally posted by HM7 View Post


    You don't get inflation protection for nothing, you have to pay a little price in lower yield for it. Otherwise, why would the government give you that free lunch?

    If you look at forward-looking yields (not prior performance); for similar maturities you will have lower yields for inflation-protected bonds compared to nominal treasuries.
    Also, from that morningstar article, short-term treasuries performed better than the I-bond with 0% fixed portion.





    Click image for larger version Name:	image.png Views:	0 Size:	92.5 KB ID:	349313
    thats not an opinion. TIPS have had a higher return than nominal treasuries. the government doesn't give it to us for free, the prices are determined at auction

    https://www.portfoliovisualizer.com/...ocation3_3=100

    Leave a comment:


  • Tangler
    replied
    Bought I-bonds. Have yet to buy tips. I own mostly stock index funds. Stocks = my inflation protection.

    Leave a comment:


  • HM7
    replied
    Originally posted by triad View Post

    why do you say you sacrifice yield? TIPS have outperformed nominal treasuries

    You don't get inflation protection for nothing, you have to pay a little price in lower yield for it. Otherwise, why would the government give you that free lunch?

    If you look at forward-looking yields (not prior performance); for similar maturities you will have lower yields for inflation-protected bonds compared to nominal treasuries.
    Also, from that morningstar article, short-term treasuries performed better than the I-bond with 0% fixed portion.





    Click image for larger version  Name:	image.png Views:	0 Size:	92.5 KB ID:	349313

    Leave a comment:


  • triad
    replied
    I started getting TIPS just before retirement. I'd recommend TIPS for any early retiree to help protect against unexpected inflation which is a huge risk to nominal bonds

    Leave a comment:


  • triad
    replied
    Originally posted by HM7 View Post
    I think there's utility in having inflation protection whether in TIPS or I-bonds. Especially as you get closer to retirement, I'm okay with sacrificing a little yield as protection against inflation.

    This article in Morningstar does a good job comparing the long-term performance of various Fixed Income assets.

    https://www.morningstar.com/articles...-bonds-forever



    why do you say you sacrifice yield? TIPS have outperformed nominal treasuries

    Leave a comment:


  • HM7
    replied
    I think there's utility in having inflation protection whether in TIPS or I-bonds. Especially as you get closer to retirement, I'm okay with sacrificing a little yield as protection against inflation.

    This article in Morningstar does a good job comparing the long-term performance of various Fixed Income assets.

    https://www.morningstar.com/articles...-bonds-forever




    Leave a comment:


  • bovie
    replied
    Originally posted by endomd View Post

    Thank you much for your kind response.
    It appears Dr. Dahle has a new post on this today (https://www.whitecoatinvestor.com/52...and-403bs-276/)

    Based on reading this, appears TIPS is better than usual bond given higher yield after adjustment for inflation in general.
    Define "better."

    TIPS also have >50% higher volatility than US total bond market.

    People don't hold bonds for return--that's what equities are for. They want stability, and perhaps some income.

    I would caution you to avoid choosing a bond allocation simply based on yield.

    Leave a comment:


  • endomd
    replied
    Originally posted by bovie View Post

    Depends who you ask. I pass on TIPS.

    Technically I pass on all bonds now in accumulation, but I will never buy TIPS.

    VBTLX would seem sufficient for bond allocation—nice and simple, holds pretty much everything—or VWIUX if you’re looking to go the muni route.
    Thank you much for your kind response.
    It appears Dr. Dahle has a new post on this today (https://www.whitecoatinvestor.com/52...and-403bs-276/)

    Based on reading this, appears TIPS is better than usual bond given higher yield after adjustment for inflation in general.

    Leave a comment:


  • bovie
    replied
    Originally posted by endomd View Post
    While thinking of incorporating TIPS into bond portfolio in future (not right now as I'm still in accumulation phase but maybe 5-10 years from now), I noticed Vanguard TIPS actually lost about 2% of value over past 6 months while inflation rate has gone up. (Although 2% loss is better than 6% loss in VBTLX and even more global stock loss).

    Should TIPS be considered important portion of bond in someone's portfolio or is benefit of having TIPS considered minimal?
    I'd like to take the approach of holding broad index bond such as VBTLX, and balancing portfolio annually, but there are so many different bonds (TIPS, municipal, corporate, treasury) and I'm not sure if holding multiple bonds in portfolio is better than having broad index bond.

    Thank you!
    Depends who you ask. I pass on TIPS.

    Technically I pass on all bonds now in accumulation, but I will never buy TIPS.

    VBTLX would seem sufficient for bond allocation—nice and simple, holds pretty much everything—or VWIUX if you’re looking to go the muni route.

    Leave a comment:


  • TIPS to hedge against inflation? Is TIPS worthwhile to have in bond?

    While thinking of incorporating TIPS into bond portfolio in future (not right now as I'm still in accumulation phase but maybe 5-10 years from now), I noticed Vanguard TIPS actually lost about 2% of value over past 6 months while inflation rate has gone up. (Although 2% loss is better than 6% loss in VBTLX and even more global stock loss).

    Should TIPS be considered important portion of bond in someone's portfolio or is benefit of having TIPS considered minimal?
    I'd like to take the approach of holding broad index bond such as VBTLX, and balancing portfolio annually, but there are so many different bonds (TIPS, municipal, corporate, treasury) and I'm not sure if holding multiple bonds in portfolio is better than having broad index bond.

    Thank you!
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