Long dated tips may finally be a buy

TIPS have been discussed in some of the other threads. With ~2% real yield, they can make a lot of sense, especially in tax deferred/sheltered accounts.

I’m buying them for a diy deferred inflation protected annuity.

ETA: looks like rates have drifted down a little. WSJ is a good place to look for current rates: https://www.wsj.com/market-data/bonds/tips
 
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I tried to add this to the other TIPS thread but it was too old. :) The prices vary day by day but TIPs have not been priced this well for a long time. If inflation is 2.4 % pa for the next 20 years I may be sorry I didn't buy the 20 year nominal treasuries but for me removing the inflation risk is a relief.
 
RetMD21 said:
I tried to add this to the other TIPS thread but it was too old. :) The prices vary day by day but TIPs have not been priced this well for a long time. If inflation is 2.4 % pa for the next 20 years I may be sorry I didn't buy the 20 year nominal treasuries but for me removing the inflation risk is a relief.
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Makes some sense I think. Insurance.
 
RetMD21 said:
I tried to add this to the other TIPS thread but it was too old. :) The prices vary day by day but TIPs have not been priced this well for a long time. If inflation is 2.4 % pa for the next 20 years I may be sorry I didn't buy the 20 year nominal treasuries but for me removing the inflation risk is a relief.
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With 2.4% set as the Over/Under on inflation I’m betting on the Over.
Reshoreing manufacturing and a lower pool of available workers is going to make that 2% target hard to hit.
I’ll be buying in the upcoming 10 and 5 year auctions. Holding out on buying the 30 year for the irrational reason I won’t be around to cash it in.
If I’m wrong I paid for sleep at night insurance.
 
GravitySucks said:
If I’m wrong I paid for sleep at night insurance.
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And even if you’re wrong. I’m guessing the amount you miss out on is trivial. My bet is that TIPS nominal yields will be similar to treasuries, but if I’m wrong, that means inflation was high and I’ll be happy to have TIPS.
 
aja8888 said:
Don't you have to pay taxes on the phantom income the TIPs generate every year?
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TiPS are kept in my IRA.

Anyone biting on the 30 year TIP bond?
Shame the 20 isn’t offered anymore.
 
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I am mainly using a TIPS ladder but I couldn't resist buying some long TIPs on the secondary market. I stay away from nominal long bonds because they are too risky for me.
 
Long bonds don’t interest me. I’m using TIPS to build a 8-10 year ladder to deal with SORR. The ladder starts in 8 years, so I wouldn’t want to go out further than 18 years.

Otherwise, I invest 100% equities. As I get closer to retirement, I’ll probably keep a couple of years spending in short-term treasuries/CDs. A lot will depend on the WR at that time.
 
tulak said:
The ladder starts in 8 years, so I wouldn’t want to go out further than 18 years.
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What do you do with the interest in the mean time?

I'd like to start a tips ladder for when I retire in ~5 years, but I'm not how to handle the interest.
 
lucky2030 said:
What do you do with the interest in the mean time?



I'd like to start a tips ladder for when I retire in ~5 years, but I'm not how to handle the interest.
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I don’t take into consideration interest. If I need 50k in 2028, then I buy a TIPS that will give me 50k + inflation adjustment in 2028 and consider the interest ‘extra’.

I’ll reinvest the interest payments when I get them based on my AA.

This causes me to buy more TIPS than I need, but I’m ok with that. I’m only buying TIPS to cover basic expenses. It’s meant to deal with the worst case scenario where we have a prolonged bear market in equities.

For example, 50k/year is a barebones budget but I really want 80k/year. The extra 30k will come from the other parts of my portfolio, assuming all is well. If it’s not well, then TIPS will prevent me from having to sell low and I can wait until things get back to normal.

If there is extra from TIPS interest along the way, all the better.

In your case, I might invest the interest into short-term treasuries and then use that as income when you retire. It might be enough, along with your other investments, that you can roll your TIPS when they mature into another step in your ladder, assuming you want to keep the ladder going.

I haven’t decided what I will do when my TIPS mature, but lots of time to figure that out.
 
At 67 yo 30 year TIPS are out of my range. I will only buy on the secondary market if the adjusted price is slightly above par or lower. This is to negate any possibility of a negative nominal return due to deflation. Currently the only long term secondary offerings with low adj price are 2042 & 2043. Again, a little too far out there for me. I think I'll continue to load up on 2032, 2033 and 2034 when they're available in Jan. As long as real rates are above 1% or so I'll add to the 10 year maturity.

I don't like the reinvestment risk but I don't see a way around it. Anyway a 10 year ladder will probably be adequate.
 
audreyh1 said:
I don’t buy long bonds.
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Same here.

Since some financial gurus I've read online argue long-term (decades) bonds are for institutions, not individual investors.

They make the case that individuals aren't sufficiently compensated for bond terms longer than around 5-8 years given the additional time & risk involved with longer terms.
 
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ncbill said:
Same here.

Since some financial gurus I've read online argue long-term (decades) bonds are for institutions, not individual investors.

They make the case that individuals aren't sufficiently compensated for bond terms longer than around 5-8 years given the additional time & risk involved with longer terms.
Click to expand...

I think that's the advantage of TIPS over nominal bonds. You don't have the inflation risk. I use a 10 year ladder and then also buy long tips anticipating selling when real returns decline and the values rise.
 
With the current fixed rate near 2% on TIPS, I might extend my ladder out to 10 years. But not more. I’m still not convinced the inflation beast will go easily into the 2% cage any time soon. YMMV.
 
Chuckanut said:
With the current fixed rate near 2% on TIPS, I might extend my ladder out to 10 years. But not more. I’m still not convinced the inflation beast will go easily into the 2% cage any time soon. YMMV.
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I don't understand
 
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