So I'm just going over some returns today and seeing this SCHP/Tips fund is by far my biggest loser. FA has NEVER advised getting out of this thing...not to mention a couple or a few other TIPS holdings. Other than the tax hit in taking the loss and trading out of this POS, what is the rationale for holding on now?
Losses in TIPS fund
- Thread starter mikes425
- Start date
gcgang
Thinks s/he gets paid by the post
- Joined
- Sep 16, 2012
- Messages
- 1,571
FA must’ve already hit his quota. Is waiting for a slow month to churn, er, trade out of it.
I don’t understand “the tax hit”. If it’s in a taxable account and you have a taxable loss, it’s more of a tax loss benefit. Sell! Sell!! Sell!!!
This is an excellent, low cost, intermediate maturity TIP investment. https://www.schwabassetmanagement.com/products/schp
Why would you get out now that real yields are back over 2%?
I’d never own an individual TIP in a taxable account. Maybe why that’s you went with the etf.
I’d sell the etf, book the tax savings, and buy some individual TIPs in a tax sheltered account.
TheWizard
Thinks s/he gets paid by the post
Bonds = bad.
Stocks = good...
Stocks = good...
Well, ok the FA makes nothing on this. He's hourly and very occasional.
There's no churn. That said, I've raised the question with him about ALL my bond positions (Just about all in ETFs or CEFs) spread across mostly taxable but also some 401k/Roth) accounts. He has maintained a "hold" on them per my age and risk tolerance, basically...suggesting this is just the "role" this allocation plays in a well diversified portfolio for my particular goals and age. The usual FA model right?
This isn't a "huge" total percentage of total PF but it is my biggest total loser if considering the sum total of all (equity AND bond) holdings.
Last edited:
When you buy a bond you are making a loan. Loaning at interest rates that seemed to make sense when inflation was 1% and then have inflation soar crushes the value of the loan contract. TIPS were hurt less by inflation than nominal bonds, but were still hurt.
Your advisor is not wrong that bonds have a purpose in the portfolio. Stocks can get hammered far worse than they were in 2022, so holding a chunk of bonds has been shown to increase the allowable safe withdrawal rate by only exposing part of your portfolio to the big risks in stocks.
Since your TIPS are now earning current market rates, over the average fund duration (6.7 years) you will get back to where you started if interest rates stay where they are and if interest rates decline back to pre-2022 levels, recovery will happen faster.
You should probably sell any in taxable and get the tax loss, but you should work with your advisor to figure out what to hold instead. Since you are struggling with losses, I would not recommend loading up on more stocks. Note that individual TIPS suffered the same loss, it's just easier to understand individual bonds eventual recovery as they will return to par at maturity, in contrast with a fund where the recovery occurs silently over time and doesn't have a specific date that it announces the recovery is complete. For the certainty of the recovery date and the avoidance of the fund fees, many folks here are DIY'ers that purchase individual TIPS themselves. Since you are more hands-off, that may not be for you.
Note that holding TIPS is a pretty good idea and if you are properly diversified, there will ALWAYS be part of the portfolio that is lagging behind the others. As long as it's not always the same laggard, you are doing fine - in the 2008 downturn, bonds illustrated their value by doing well compared to stocks for instance.
Your advisor is not wrong that bonds have a purpose in the portfolio. Stocks can get hammered far worse than they were in 2022, so holding a chunk of bonds has been shown to increase the allowable safe withdrawal rate by only exposing part of your portfolio to the big risks in stocks.
Since your TIPS are now earning current market rates, over the average fund duration (6.7 years) you will get back to where you started if interest rates stay where they are and if interest rates decline back to pre-2022 levels, recovery will happen faster.
You should probably sell any in taxable and get the tax loss, but you should work with your advisor to figure out what to hold instead. Since you are struggling with losses, I would not recommend loading up on more stocks. Note that individual TIPS suffered the same loss, it's just easier to understand individual bonds eventual recovery as they will return to par at maturity, in contrast with a fund where the recovery occurs silently over time and doesn't have a specific date that it announces the recovery is complete. For the certainty of the recovery date and the avoidance of the fund fees, many folks here are DIY'ers that purchase individual TIPS themselves. Since you are more hands-off, that may not be for you.
Note that holding TIPS is a pretty good idea and if you are properly diversified, there will ALWAYS be part of the portfolio that is lagging behind the others. As long as it's not always the same laggard, you are doing fine - in the 2008 downturn, bonds illustrated their value by doing well compared to stocks for instance.
Great points and much appreciated. I have to keep to keep it in proper perspective. Relatively speaking yes, The TIPS are simply a part of the overall reasonably well-diversified PF composition and I suppose it's human nature to look at whatever happens to be the loss leader at any given time. As for tax loss harvesting, I'll have plenty to choose from this year - mostly in the bond sector in my case...so I presume there's no rush to sell anything now. Typically I'll meet with this guy near year-end for whatever sells make sense with regard to tax benefits. The majority of my PF is in Taxable because I got started kinda late with an I-401k and regular IRA. Thanks again for the feedback!
Did you sell all your equities last year when they were down 20%?
VanWinkle
Thinks s/he gets paid by the post
LOL
target2019
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Bonds = sometimes bad
Stocks = sometimes worse than bad
Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
TIP funds are different from TIP bonds.
I have both, and have also seen a capital loss in the TIP fund.
I buy my TIP bonds and Treasuries each in various durations 2 months to 10 years.
Since I have a choice with individual bonds, I can wait for the short term ones to mature and not be forced to sell at a loss.
I'll no longer buy bond funds, as I've realized I want to control which get sold and I don't need to diversify in TIPs or Treasuries or CD's as all are gov't backed.
I have both, and have also seen a capital loss in the TIP fund.
I buy my TIP bonds and Treasuries each in various durations 2 months to 10 years.
Since I have a choice with individual bonds, I can wait for the short term ones to mature and not be forced to sell at a loss.
I'll no longer buy bond funds, as I've realized I want to control which get sold and I don't need to diversify in TIPs or Treasuries or CD's as all are gov't backed.
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Virtually every bond fund and bond holding is very likely showing a loss now.
Why? Interest rates have been hiked very rapidly. And that is exactly what happens?
And TIPS have greater duration risk than similar securities with the same maturity. So they will be down more than regular Treasuries.
So nothing unexpected. And my guess that is why your FA is not suggesting selling this "dog".
You may want to evaluate your holdings with your advisor and get your questions answered. I cannot see an issue with the info in your post. But if you sell and buy something else and rates go up 500 basis points subsequently, those will also be showing losses.
Markola
Thinks s/he gets paid by the post
I don’t doubt all of this analysis but we have inflation now, so something called a Treasury Inflation-Protected Security mutual fund ought to be behaving differently, or it should be called something else. False marketing.
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I agree it is confusing. But inflation expectations and interest rate hike fears are two related but different things. And the bulk of the inflation protection in TIPS comes at maturity i. e. far in the future. That equals volatility.
Affinity4Investing
Recycles dryer sheets
- Joined
- Jul 30, 2023
- Messages
- 133
Agree: It's false something. An article from Schwab on why TIPS haven't gotten the job done, FWIW:
https://www.schwab.com/learn/story/why-havent-tips-returns-kept-pace-with-inflation
IMO, if they were priced to actual inflation that is seen in the real world - there would be a very different result in performance. But they aren't. They are indexed to lala-land numbers the gov makes up (ex this, ex that, ex the other thing or two) to hide how bad the problems really are. We refuse to own them.
Last edited:
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
That's fine, but what do you buy as a hedge against inflation and do the returns from that investment correlate with inflation better? Perfect is the enemy of good.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Markola
Thinks s/he gets paid by the post
Thanks. I don’t own any, so only had a passing understanding. I read a bit and see how they work and that they are long-term investments.
I would not want to be an advisor who put Gramps in a TIPS fund and now have to explain why the fund has sunk like a stone, just like other bond funds.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Really, like any bond.
In ~2006 when we retired, our view was that we had plenty of money absent runaway inflation like we saw in the late 70s, early 80s. We decided to buy insurance against this, a serious 6 digit TIPS position, specifically the 2s of 26. At the time this was the lowest coupon and longest bond that we could get. We still hold most of them. When interest rates went to zero we looked like geniuses, but selling would have defeated the purpose of buying them in the first place. So 15+ years later we still hold most of them. I am kind of dreading 2026 when they mature because we won't have a lot of time left and thus won't need the kind of inflation protection that we needed in 2006..
As mentioned, TIPS funds are not TIPS. Holding to maturity will give you inflation protection, likely the best available, while still providing a real return.
When you buy a TIPS, you know the exact amount of how much you will get and on top of that you can estimate an inflation yield. I estimate inflation at 2%/year over the lifetime of the TIPS. Of course, this assumes you will hold to maturity.
They’re a good deal right now. About 2% real yield with inflation protection, I’m expecting they’ll have a nominal yield of 4%+. I’m buying them for a diy deferred inflation protected annuity. The only hard part is the lack of TIPS maturing between 2033-39.
Anytime you mark-to-market your investments, you may see declines. Bonds are not special in this regard. I would be surprised if you see a loss if you hold the fund to it’s average maturity of bonds.
When you buy a TIPS, you know the exact amount of how much you will get and on top of that you can estimate an inflation yield. I estimate inflation at 2%/year over the lifetime of the TIPS. Of course, this assumes you will hold to maturity.
They’re a good deal right now. About 2% real yield with inflation protection, I’m expecting they’ll have a nominal yield of 4%+. I’m buying them for a diy deferred inflation protected annuity. The only hard part is the lack of TIPS maturing between 2033-39.
Anytime you mark-to-market your investments, you may see declines. Bonds are not special in this regard. I would be surprised if you see a loss if you hold the fund to it’s average maturity of bonds.
