Originally Posted by two4theroad
I am rebalancing and shuffling for tax loss harvesting. (hopefully before the big run up!!)
With all the headlines about recession and low inflation for the next few years my VIPSX (TIPS fund) is looking really sad. My last two pay outs from it were truly pathetic, any worse and I would have to send money in.....
What is negative about this scenario other than a feeble attempt at market timing? I just can't see keeping a large chunk of TIPS fund with absolutely NO return.
Well, are you investing for income or for long-term inflation protection? Keep in mind that VIPSX has had a nice run-up in NAV even as its income component has shrunk. So it's doing its job in terms of keeping up with inflation and then some, but for current income a TIPS *fund* is not reliable for income in low/no/negative inflation scenarios -- but individual TIPS are. (They may temporarily lose market value, but will at least return par at maturity.)
It's important for investors to remember that what really matters in the end is REAL return. In a deflationary environment, zero nominal return is a positive real return. These are unusual times (and unprecedented in most of our lifetimes), and it challenges our mindset when we see something returning a nominal 0-1%. But in *real* terms it's still doing what it was intended to do. But in a fund, the income component may decline to next to nothing in such a period, so a TIPS fund
can't be relied on for those who need current income (but individual TIPS can).