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Old 08-28-2010, 08:42 PM   #21
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I think "slowly" makes a lot of sense. TIPS yields/prices move around. If I'm risk averse enough to be buying TIPS, then I probably like the idea of spreading my purchases across a variety of price points.

(That said, I put a big lump sum into Vanguard's TIPS fund. But that was because my qualified savings were in a 401k without a TIPS option, so I had to wait until I could transfer to an IRA.)
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Old 09-28-2010, 07:08 PM   #22
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The advantage to the auctions is that the new issue bonds are sold close to par. Some of the TIPS on the secondary market have inflation factors applied, so if there were ever extended deflation you might only get back the par value when the bonds mature.
You made a very careful distinction here-new issue bonds sold at auction are sold close to par. However, not all TIPS sold at auction are new issues. Some are reissues of earlier bonds, and these may well not be at par.

I dont really understand this well, I just noticed it when shopping to buy some at auction.

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Old 09-29-2010, 09:25 PM   #23
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I'm about ready to sell off all our TIPS. Yields are just too low and I think it is time to do a Swedroe shift to low duration nominals.
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Old 09-30-2010, 08:42 AM   #24
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I'm about ready to sell off all our TIPS. Yields are just too low and I think it is time to do a Swedroe shift to low duration nominals.
Agreed. There are some alternatives for near zero duration products that yield more than 10-yr bonds, some CDs come to mind. "Stable value" funds in 401(k)s also, as long as you understand the risks of these.

You risk losing out on any additional capital appreciation if yields continue to head south, but you still benefit from what will be above market interest rates. With 10-yr treasuries at ~2.5%, near their "the world is ending low," further declines seem limited unless the U.S. is really heading for deflation. On the other hand, if rates back up, you can swap back in to higher yields at very little cost. It seems like a good risk / reward proposition right now.

I have about 50% of my fixed income portfolio (including cash) now in near-zero duration products with an average yield of 2.95%. I think that beats the hell out of the bond index yielding 2.54% with a duration of 4.3.
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Old 09-30-2010, 09:00 AM   #25
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My problem with TIPS is that the yields are at historical lows. See for example St. Louis Fed: Series: DFII10, 10-Year Treasury Inflation-Indexed Security, Constant Maturity
I also agree with this. You might want to look at current real yields, ranging from (.11%) for 5-yr, that's right, negative real yields for 5-yr maturities, to 1.59% for 30-yr maturities, and see if they'll work for your retirement plan. Most folks around here talk about a 4% withdrawal rate, although everyone seems to shoot for something lower. A TIPS ladder, at current yields probably allows for a less than 1% withdrawal rate before you start consuming principal. Not many people could save enough to swing that.
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Old 09-30-2010, 09:03 AM   #26
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It doesn't matter if you buy at auction (no transaction fee at schwab, fidelity etc.) or on the secondary market.
Although auctions usually clear at a premium yield to where secondary's trade. And, as someone else already stated, there is a big difference in the risk of TIPS where the principal has a zero inflation adjustment (typically new issue) and ones where the inflation adjustment is large (older TIPS). I think auction is the way to go, generally. But certainly there are instances where a secondary trade might make sense too.

And don't confuse "par" with the inflation factor. The price of the bond can be at par, and yet the principal could still be adjusted upward significantly for inflation. The prices you see quoted online and elsewhere typically don't include the inflation factor.
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