Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Some TIPS funds include inflation in their yields
Old 04-30-2011, 01:03 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Some TIPS funds include inflation in their yields

I only ever looked at Vanguard's TIPS Index and they apparently do the calculation right; so I never noticed any funny business. But according to this WSJ article, many other mutual funds annualize the last period's inflation adjustment as part of their SEC yield calculation - allowing some to report yields as high as 6%. That strikes me as misleading, dishonest and shameless.
__________________

__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-30-2011, 04:59 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
I feel that this is not surprising. The great majority of mutual fund buyers look only at the most superficial and often misleading metrics. The fund firms are behaving rationally, by attracting the most money that they can while staying within the law.

You wouldn't believe how little some investors understand about mutual fund payouts vs.those same funds true yields.

In fact, to me the way the TIPS funds report is less misleading than the typical way that mutual funds like GABUX and many others combine actual dividend and interest income with return of capital in their popularly reported yields. In the case of GABUX, the revelation that their actual yield was roughly 15% of their reported yield came only in near the end of the annual report.

If I understand you correctly, at least with the TIPS funds you are discussing, it is a yield, but it is not the "real" yield.

I am coming around to the idea that for the great majority of investors, they should buy a good selection of funds from Vanguard and then go play pinochle.

Anybody should understand that a fund cannot yield more than its underlying securities, in fact it must yield less, the amount less depending only on the size of the drag from the costs. So if no TIPS security yields anywhere close to 6% real, how could the fund?

If one is not prepared to think even a little, he should stay home.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 04-30-2011, 06:28 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by haha View Post

If one is not prepared to think even a little, he should stay home.

Ha
That requirement would certainly make it easier to get a seats at restaurants etc. The bad news is would certainly cut into our girl watching opportunities. . (And boy watching for the woman)
__________________
clifp is offline   Reply With Quote
Old 04-30-2011, 06:54 PM   #4
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by haha View Post
If I understand you correctly, at least with the TIPS funds you are discussing, it is a yield, but it is not the "real" yield.
Yep, in "real" terms it is effectively a return of capital, and it occurs because the TIPS mutual funds pay out the inflation component while the underlying bonds add the inflation component to the principal.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 04-30-2011, 10:02 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by clifp View Post
That requirement would certainly make it easier to get a seats at restaurants etc. The bad news is would certainly cut into our girl watching opportunities. . (And boy watching for the woman)
Glad you mentioned that. Today was our first truly warm day, so I sat in front of a coffee house down on Broadway and watched women sporting the most lovely bottoms in existence come undulating by.

It is my opinion, after much careful thought, that dresses, rather than jeans or even tights are the most arousing because they allow a freer movement of the hips and buttocks.

Summertime, a perfect time for love...

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 04-30-2011, 10:54 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by haha View Post
Glad you mentioned that. Today was our first truly warm day, so I sat in front of a coffee house down on Broadway and watched women sporting the most lovely bottoms in existence come undulating by.

..
Summertime, a perfect time for love...

Ha
I bet the level of financial literacy wasn't on your mind.
__________________
clifp is offline   Reply With Quote
Old 05-01-2011, 08:19 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by haha View Post
If I understand you correctly, at least with the TIPS funds you are discussing, it is a yield, but it is not the "real" yield.
I guess my thinking it is that it is a completely meaningless number. They're taking a variable portion of return (the inflation adjustment) from one period and annualizing it to arrive at an SEC yield. I don't see much difference between this and including capital appreciation in the yield calculation.

And although I recognize that increased financial literacy would help (alarm bells should go off in anyone's mind about a TIPS fund yielding 6% when the highest yielding bond outstanding is around 1.75%) we should expect more from presumably reputable companies.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 05-01-2011, 11:00 AM   #8
Recycles dryer sheets
thefinancebuff's Avatar
 
Join Date: Dec 2008
Posts: 262
Expected inflation is a part of the yield on nominal bonds too. Whether annualizing the latest inflation adjustment is right or wrong depends on whether the last month is a typical month. If it is, then including inflation adjustment makes it comparable with nominal bond yield. If it's abnormally high or low, doing so will make the yield appear high or low - you have to remember it cuts both ways. Nobody said it was the real yield.
__________________

__________________
thefinancebuff is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
High Inflation with Low CD Yields? John Galt III FIRE and Money 6 01-03-2010 09:48 PM
TIPS funds vs Inflation swodo Stock Picking and Market Strategy 11 04-09-2009 05:22 AM
TIPS yields cyclone6 FIRE and Money 28 12-04-2008 08:43 AM
TIPS, VIPSX and Current Yields Culture FIRE and Money 12 11-18-2008 05:52 PM
TIPS yields Peter FIRE and Money 0 10-09-2008 12:23 PM

 

 
All times are GMT -6. The time now is 10:53 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.