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08-07-2004, 04:25 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: No. California
Posts: 1,858
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TIPS vs IBonds
I have read about the benefits of each of these, but not seen a comparison. For someone who is not yet ER, has a 401K and Roth Ira and still wants to invest for income and safety, which woud be best?
Thanks
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08-07-2004, 04:49 PM
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#2
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Recycles dryer sheets
Join Date: Sep 2002
Posts: 252
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Re: TIPS vs IBonds
I-Bonds are naturally tax-deferred. Thus they are good for your taxable accounts
TIPS pay interest, so they are better for tax-free/tax-deferred retirement accounts.
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08-07-2004, 05:06 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: No. California
Posts: 1,858
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Re: TIPS vs IBonds
Thanks, I'll look more closely at I Bonds.
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08-07-2004, 08:19 PM
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#4
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Recycles dryer sheets
Join Date: Feb 2004
Posts: 123
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Re: TIPS vs IBonds
TIPS also have a specific maturity. The real rate of return above the rate of inflation adjustment is higher for TIPS maturing out in the 10 and 20 year range.
__________________
"He who speaks of dryer sheets has not seen the clothes line." Al B. Tross
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08-07-2004, 08:41 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: TIPS vs IBonds
I-bonds are essentially 5-year TIPS with some side-benefits. *Those benefits are tax deferral (not a huge benefit), tax-free if you use them for education, you can cash them out after 1-year with penalty, and you can keep them for up to 30 years. * And in periods of deflation they pay 0% real rather than going negative as TIPS can.
TIPS are better for longer-term investments (>= 10 years) for the simple reason that they have a higher yield with longer-term offerings. * I-bonds and 5-year TIPS yield about 1%, 10-year TIPS yield about 2%, and 20-year+ TIPS yield about 2.5% above inflation. TIPS also trade on the secondary market, so there's a possibility of making capital gains (and losses) that doesn't exist for i-bonds.
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08-08-2004, 06:58 PM
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#6
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Recycles dryer sheets
Join Date: Feb 2004
Posts: 123
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Re: TIPS vs IBonds
If I recall my reading, TIPS are probably more suited to a tax defered account. Being that you not only pay taxes on the "real" rate of return, but also the inflationary increase on a periodic/yearly basis. I bonds are tax defered until you cash them in, so are better suited for a taxed account. Among all of the other things mentioned.
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"He who speaks of dryer sheets has not seen the clothes line." Al B. Tross
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08-08-2004, 07:24 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: No. California
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Re: TIPS vs IBonds
What I'm trying to do is increase my taxable holdings that are not my Emergency Fund. IEF is in a MM acct. And I want the taxable account in a safe environment.
I have a 401K that is 60% stocks index fnds and 40% cash/bonds. I also have an IRA that has 60% Wellesley and the 40% is 500 Index, I might move this to Wellington.
I will probably be selling my house in 18 months and investing that money in some sort of bonds. I'l be living on that money until my pensions kick in and then eventually SS.
Does IBonds sound like the right thing for this situation?
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08-08-2004, 09:05 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: TIPS vs IBonds
Did you mention when you plan to retire? If it's <= 5 years from when you invest, and you plan to cash out your bonds, go with i-bonds. If you don't plan to cash out the bonds in 5-years, and you plan to retire pretty soon, then go with TIPS and don't sweat the taxes. If you don't match either of these cases, do something else entirely.
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08-09-2004, 04:17 AM
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#9
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Recycles dryer sheets
Join Date: Feb 2004
Posts: 123
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Re: TIPS vs IBonds
Considering your description, you might also want or need to consider the maximum amount a person can invest in I-bonds per year.
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"He who speaks of dryer sheets has not seen the clothes line." Al B. Tross
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