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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 03:52 PM   #41
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Re: Buying 5-year TIPS at Monday's auction

Okay, I'll admit it, I'm dense. :P Can someone explain why one would want to invest in TIPS? Please explain in a nutshell or high level. There's way too much information here for me to digest.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 03:57 PM   #42
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by cube_rat
Okay, I'll admit it, I'm dense. :P Can someone explain why one would want to invest in TIPS? Please explain in a nutshell or high level. There's way too much information here for me to digest.
I will leave the "explanation" to others, but can tell you why I do not.
You touched on it......."way too much information". I have no interest in wading through it and parsing each .00001 % of yield change. There
are many many places to invest without straining your brain over TIPS,
IMHO.

JG
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 03:59 PM   #43
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Re: Buying 5-year TIPS at Monday's auction

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Originally Posted by cube_rat
Okay, I'll admit it, I'm dense. :P Can someone explain why one would want to invest in TIPS? Please explain in a nutshell or high level. There's way too much information here for me to digest.
Two words: inflation protection.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 04:00 PM   #44
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Re: Buying 5-year TIPS at Monday's auction

No matter how high inflation goes (for the next 4.5 years anyway--), my TIPS will yield inflation (as measured by CPI) plus 2.691%.

-- Say CPI is 2.5% for the first 6 months. My TIPS will yield 5.12% annualized.
-- Say CPI is 3.5% for the next 6 months. My TIPS will yield 6.12%.
-- @CPI 4.5%, I get 7.12%
-- EDIT @CPI 2%, I get 4.691
-- EDIT @CPI 1%, I get 3.691%.

Pretty good for fixed income, and a nice inflation hedge.

EDIT If inflation is low, eh--I lose this bet. But I don;t lose any money (just "opportunity cost"). I like that.

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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 04:03 PM   #45
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Re: Buying 5-year TIPS at Monday's auction

Very interesting... thanks for the information.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 04:08 PM   #46
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by cube_rat
Okay, I'll admit it, I'm dense. :P Can someone explain why one would want to invest in TIPS? Please explain in a nutshell or high level. There's way too much information here for me to digest.
Hopefully this is simple and still makes sense. You can buy a 5 year fixed treasury, or a 5 year TIPS. With the fixed bond, you lock in a yield of X% and over the next 5 years, you will earn X% minus the ravages of inflation. With the TIPS, you get a lower coupon, but inflation is automatically compensated for in the bond. So over the next 5 years, the TIPS earns its coupon and you don't have to worry about the ravages of inflation.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 04:19 PM   #47
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Re: Buying 5-year TIPS at Monday's auction

Thanks, Brew.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 05:45 PM   #48
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by astromeria
No matter how high inflation goes (for the next 4.5 years anyway--), my TIPS will yield inflation (as measured by CPI) plus 2.691%.

-- Say CPI is 2.5% for the first 6 months. My TIPS will yield 5.12% annualized.
-- Say CPI is 3.5% for the next 6 months. My TIPS will yield 6.12%.
-- @CPI 4.5%, I get 7.12%
-- EDIT @CPI 2%, I get 4.691
-- EDIT @CPI 1%, I get 3.691%.

Pretty good for fixed income, and a nice inflation hedge.

EDIT If inflation is low, eh--I lose this bet. But I don;t lose any money (just "opportunity cost"). I like that.

And the best part is if we go into a "Greater Depression" and the inflation rate falls to less than zero (deflation), the return on the TIPS could go negative!!!!

If you had a plain old Treasury, it would skyrocket in value.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 07:21 PM   #49
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Re: Buying 5-year TIPS at Monday's auction

When I said I liked TIPS, I didn't mean to the exclusion of all else. I have 3 times as much in CDs as TIPS, in corporate bonds as in TIPS, and in MMAs as in TIPS--i.e., my other fixed income dwarfs my position in TIPS. And never fear, I will be buying other types of treasuries!
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 07:54 PM   #50
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by astromeria
EDIT If inflation is low, eh--I lose this bet. But I don;t lose any money (just "opportunity cost"). I like that.
I think Hell will freeze over before we have to worry about this.

I look upon deflation concerns as "head fake" done by the Fed or by anyone else who wants to get or eyes off where they belong-on what is actually going going on.

Ha
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Re: Buying 5-year TIPS at Monday's auction
Old 10-24-2006, 05:32 PM   #51
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by astromeria
POLITICAL ASIDE
Lucky for me, GWB can't be elected a third time so I'm not as worried about a depression as I might otherwise be . (Gimme some Chuck Hagel & John Danforth, guys, maybe a little Lindsey Graham, instead of the current crew next time, eh? At least they can rub two neurons together without blowing something up.) /snark off
Don't confuse me with a Bush-ite, but I've seen nothing to impress me so far for "leadership" from the dems to replace him. I think the Democrats self-destructed in the last two elections by carefully finding the only unelectable candidates available. Even then, it was close.

I've always looked at Bush as an anti-abortion semi-liberal. He's spent like a drunken sailor (sorry Nords) and not been much in the way of controlling our border or associated social costs. I could continue my list but I hate to think who would start agreeing with me.

Also, I suspect he GW will get favorable "long term" historal evaluation because of his "rising to the occasion" with the "War on Terror." Lincoln is revered yet he suspended habeus corpous (SIC?), instituted income tax, created the first military draft, seized private property..... It shows you never know how it will get reviewed until long after they are dead.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-24-2006, 06:01 PM   #52
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
Don't confuse me with a Bush-ite, but I've seen nothing to impress me so far for "leadership" from the dems to replace him. I think the Democrats self-destructed in the last two elections by carefully finding the only unelectable candidates available. Even then, it was close.

I've always looked at Bush as an anti-abortion semi-liberal. He's spent like a drunken sailor (sorry Nords) and not been much in the way of controlling our border or associated social costs. I could continue my list but I hate to think who would start agreeing with me.

Also, I suspect he GW will get favorable "long term" historal evaluation because of his "rising to the occasion" with the "War on Terror." Lincoln is revered yet he suspended habeus corpous (SIC?), instituted income tax, created the first military draft, seized private property..... It shows you never know how it will get reviewed until long after they are dead.
Damn, 2B.....that is good. I'm not kidding folks.

JG
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Re: Buying 5-year TIPS at Monday's auction
Old 10-26-2006, 06:19 AM   #53
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Re: Buying 5-year TIPS at Monday's auction

I wasn't following this thread until I saw that it degenerated into the same old, same old. How did TIPS turn into politics? Was Clinton somehow behind it?
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 11:22 AM   #54
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Re: Buying 5-year TIPS at Monday's auction

I am confused (again). My IRA statement says my TIPs current yield (TIP ETF ) is 5.8. Some posts seem to be talking about yield (?) being 2.3 to 2.6 (or so). Am I actually earning 5.8 interest? I assume I'm missing something. Can you tell me what it is? (But let's keep the what-I'm-missing subject matter as to the TIP situation). Thanks.
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 11:36 AM   #55
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Re: Buying 5-year TIPS at Monday's auction

Your statement is giving you total or nominal yield. The posters here have been talking about real after inflation yield.

Ha
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 12:18 PM   #56
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Re: Buying 5-year TIPS at Monday's auction

So, let's say that I would like to buy a bond fund for an IRA account. TIPs seem to be quite safe and higher yielding than most bond funds (that I'm aware of). Aren't safe and higher yielding two things that I should be looking for? So, what am I missing here?
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 01:54 PM   #57
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by redduck
So, what am I missing here?
IMO, nothing.

Ha
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 05:30 PM   #58
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by redduck
TIPs seem to be quite safe and higher yielding than most bond funds (that I'm aware of). Aren't safe and higher yielding two things that I should be looking for? So, what am I missing here?
I'm not quite sure where you get that TIPS yield higher than "most" bond funds.
Two of the broader bond funds, AGG ad VBTLX, both yield well over 4%, as opposed
to 2.375% for the recently sold TIPS. Of course, the principal of TIPS tends to
grow faster than a bond fund's share value, at least with static or rising interest
rates.

Not that I don't think TIPS are a fine thing. A simple spreadsheet shows that
an investment with steady total return equal to inflation+2.5% can sustain an
inflation-adjusted,40-year, 4% SWR. And the TIPS pretty much gives you that,
guaranteed. Of course, getting the return of principal needed to sustain the 4%
requires a disciplined approach where some money is pulled out when the TIPS
rolls over.

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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 06:17 PM   #59
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Re: Buying 5-year TIPS at Monday's auction

Well, I got the yield from my IRA statement which said the TIPs yield was 5.8. Barron's also has the yield about that high. However, I do often came across numbers like you've reported (2.4.-2.5 or so).

And, besides, HaHa says I'm missing nothing.

So, if I have $100 in TIPs, do I actually earn $5.80 or $2.40? (Here's hoping at least my math is right).
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 08:13 PM   #60
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by redduck
So, if I have $100 in TIPs, do I actually earn $5.80 or $2.40? (Here's hoping at least my math is right).
You earn $5.80, but you only get $2.40 paid out in cash, unless the fund actually sells off some bonds and pays out the extra to get it up to $5.80. If you actually held the bond directly, you would get $2.40 in cash, and the bond would increase in value from $100 to $103.40.
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