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-   -   TIPS: Can they be hurt real bad? (http://www.early-retirement.org/forums/f28/tips-can-they-be-hurt-real-bad-66423.html)

redduck 04-28-2013 12:39 PM

TIPS: Can they be hurt real bad?
 
I own a lot of TIPS (in an ETF TIP fund). And, I've been sort of taking it for granted they couldn't be badly hurt--like a 20-30% drop in value. Just how wrong am I? What could happen that would cause a major loss to the value of TIPS?

daylatedollarshort 04-28-2013 12:59 PM

My TIPS went up 20 - 40% the last few years. These are individual bonds and mostly 30 year. What goes up that amount could go down that amount or more.

I have been selling off gradually to lock in the profits. There isn't much room for yields to go down any more, but no upper limit on how much yields could go up, which would wipe out all my profits. I thought if I waited until rates actually started going up again to sell, everyone else would be selling then, too, and prices would dive. I have been buying CDs with the money from the TIPS.

I have also been gradually dumping the TIPS bond funds. I never owned any TIPS ETFs.

For fixed income, beside the CDs and I bonds, we have access to three stable value funds from our various 401ks. We also have some international, short term US, floating rate and a bit of junk for bond funds.

redduck 04-28-2013 01:44 PM

I thought TIPs were supposed to do best in a mild-medium inflation environment(what ever that may be) and that their yield and price would both increase. I do understand that other bonds/bond funds don't operate this way, but I thought TIPs did. Could I be wrong?

MichaelB 04-28-2013 01:54 PM

Vanguard TIPS fund dipped around 12% in 2009. Accrued interest can be subtracted from TIPS in a deflationary environment.



http://globalquote.morningstar.com/g...0-6-29:::B:USA

daylatedollarshort 04-28-2013 02:57 PM

Quote:

Originally Posted by redduck (Post 1314324)
What could happen that would cause a major loss to the value of TIPS?

Higher yields on new issue TIPS
Low inflation or deflation projections
Actual deflation so that the inflation factor turns negative
The government defaulting on its debts or looking like it might

heeyy_joe 04-28-2013 04:37 PM

I recently reduced my TIPS holdings by about 2/3rds.

redduck 04-28-2013 07:31 PM

Quote:

Originally Posted by heeyy_joe (Post 1314414)
I recently reduced my TIPS holdings by about 2/3rds.

Why???

The edit:
Now, I have no idea how the little blue face showed up. I didn't put it there.

FIREd 04-28-2013 07:40 PM

Quote:

Originally Posted by redduck (Post 1314463)

The edit:
Now, I have no idea how the little blue face showed up. I didn't put it there.

It shows up automatically if you type 3 question marks in a row.

redduck 04-28-2013 08:22 PM

Quote:

Originally Posted by FIREd (Post 1314465)
It shows up automatically if you type 3 question marks in a row.

OK, thanks.

By the way, do you have any idea why heeyy_joe sold about 2/3 of his TIPS holdings?

FIREd 04-28-2013 08:49 PM

Quote:

Originally Posted by redduck (Post 1314483)
OK, thanks.

By the way, do you have any idea why heeyy_joe sold about 2/3 of his TIPS holdings?

I don't know why heeyy-joe sold 2/3 of his TIPS, but I sold 100% of mine because the easy money had been made and I was looking at 25-30 years of guaranteed low returns from there on out.

brewer12345 04-28-2013 08:52 PM

In late 2008/early 2009 people freaked that deflation would set in hard. I bought TIPS that were originally issued as 10 year bonds with 5 years left to go with a 3% real yield to maturity.

Simply put, real yields demanded by new TIPS buyers could rise. At the moment, TIPS offer a negative real yield. That could change.

daylatedollarshort 04-28-2013 09:32 PM

Quote:

Originally Posted by brewer12345 (Post 1314491)
In late 2008/early 2009 people freaked that deflation would set in hard. I bought TIPS that were originally issued as 10 year bonds with 5 years left to go with a 3% real yield to maturity.

Simply put, real yields demanded by new TIPS buyers could rise. At the moment, TIPS offer a negative real yield. That could change.

I have kicked myself for years for not going on a buying spree back then. I did buy what I could when the yields were still over 2% but hesitated at the 3% mark. I will not make that mistake again, if yields ever go back that high.


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