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Good book or website on TIPS?
Old 06-20-2022, 08:28 AM   #1
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Good book or website on TIPS?

KevinK posted a link to Tips Watch in the thread "We are entering a Golden Period for Fixed-income Investment"


I'd like to explore investing in TIPs but don't know enough to jump in.



Does anyone have a book on TIPs to recommend? Or a website in addition to the Tips Watch?


Thanks
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Old 06-20-2022, 10:09 AM   #2
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I would also be interested in any links to learn about TIPS. Also, if someone were kind enough to give a brief bulleted summary of the key points regarding TIPS that would be helpful.

Thanks to this site, I now understand iBonds and I have now invested including gifting. But, TIPS, I am fairly clueless. What I like about iBonds is that if inflation continues to be high, it is an awesome long term investment. And, if inflation goes to 0 in 6 months (or way down), one can sell in 1 year and with the current guaranteed 9.62% rate for the 1st 6 months it is still a great investment. So, you cannot lose with iBonds. And, one can create a spreadsheet to determine how many years out to gift (based on assumed inflation rates and risk).

Is TIPS the same or is it only a hedge against long term inflation with risk of not being a great investment if inflation were to go way down within the next year or two?
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Old 06-20-2022, 10:34 AM   #3
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Treasury Inflation Protected Security
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Old 06-20-2022, 10:34 AM   #4
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Originally Posted by Earl E Retyre View Post
And, if inflation goes to 0 in 6 months (or way down), one can sell in 1 year and with the current guaranteed 9.62% rate for the 1st 6 months it is still a great investment. So, you cannot lose with iBonds. And, one can create a spreadsheet to determine how many years out to gift (based on assumed inflation rates and risk).

Is TIPS the same or is it only a hedge against long term inflation with risk of not being a great investment if inflation were to go way down within the next year or two?
Well, first of all the whole stored up gifting strategy is at risk for 0% for the number of years out you have pre-purchased, these gifts can't be cashed out until given, and they can't be gifted (without going over) until the year you targeted. So, in that case, most are not going out more than a few years.

As far as I know the 5 yr TIPS is the shortest duration you can buy, which puts you at risk if we see negative inflation, like we saw in the recent past...I am also hoping for some better insight into why these might offer low risk for high return.
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Old 06-20-2022, 10:41 AM   #5
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TIPS aren't a great deflation hedge. They aren't going to make you a lot of money when inflation is low. However, a ladder with a 1.3% real return will provide a 4% safe withdrawal rate over 30 years. (0 real = 3.33% SWR, 3% real yield = 5% SWR).

A 3.33% safe withdrawal rate is what Morningstar says is the new SWR for a 50/50 portfolio, with no government guarantees, and a chance to be much higher or lower since future stock and bond returns are unknown.

We have TIPS (plus pensions and Social Security) for the money we need to cover expenses in retirement, and then stocks and nominal bonds for diversity and a chance to make (or lose) a bit more than TIPS.
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Old 06-20-2022, 10:45 AM   #6
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With the FED hellbent to lower inflation over the next few years (CPI=U in particular), TIPS going forward are not attractive, given the FED can succeed.
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Old 06-20-2022, 11:05 AM   #7
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With the FED hellbent to lower inflation over the next few years (CPI=U in particular), TIPS going forward are not attractive, given the FED can succeed.
+1

TIPs are also risky if we have a recession in the next couple of years. If there is any deflation they can lose some or all of the accrued inflation gained in prior years.

If you buy newly issued TIPs and hold to maturity you are guaranteed to receive nominal value, but if you invest in a TIPs mutual fund or ETF you can also lose nominal value.

I’m not suggesting avoiding TIPs, just highlighting one risk that is often ignored.
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Old 06-20-2022, 11:23 AM   #8
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Harry Sit's book is pretty good.
https://smile.amazon.com/gp/product/B08HN9PYGC/
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Old 06-20-2022, 11:38 AM   #9
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Thanks RunningBum
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Old 06-20-2022, 12:29 PM   #10
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To me the biggest negative of TIPS is you have interest rate risk. This may seem curious but the market places a value on the interest stream and the face value of TIPS just like almost any other bond. So the price varies which can cancel out the inflation protection.

An attractive feature of I-bonds is the price does not vary.

TIPS are an imperfect hedge and the more I have looked at them, the less value I see compared to comparable treasuries and especially compared to I-bonds (though they have other, different limitations.

Good investing.
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Old 06-20-2022, 12:45 PM   #11
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I have posted my feelings about tips a few times

they are not terrible but i would never count on them to keep up with my lifestyle costs .

they may not even keep up with actual inflation .



Numbers in a spreadsheet do not tell you about political risk that often comes with high inflation. You have to use some intuition and historical extrapolation to guess what results from high inflation and why you don't want to use TIPS.

1) High inflation is a political problem in almost every case. The people causing the inflation know they are doing it.
2) Because high inflation is unpopular with the masses, the people in charge are always going to lie about it as long as possible to deflect blame.
3) Then when lying doesn't work, they will implement policies like price controls to make it look like they are doing something. This always makes it worse.
4) Along the way, they will manipulate economic numbers to try to trick the markets. However the markets are much smarter than the typical politician, who is usually an idiot based on my experience.

But these things are not going to show up in Excel. There is no ("IDIOT POLITICIAN ) function you can call. There is no way for you to anticipate what actions they will take to lie about the situation. And, there is no way for you to know how the markets are going to react to the mess.

I will only suggest that the markets will figure out the right thing to do and that right thing usually is not relying on government numbers about inflation.

so tips are like buying fire insurance from an arsonist

Or you can simply go back and read Nixon's, Ford's and Carter's speeches about inflation in the 1970s. It was lie after lie after lie. A decade of lies.

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.
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Old 06-20-2022, 12:56 PM   #12
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Originally Posted by Happyras View Post

As far as I know the 5 yr TIPS is the shortest duration you can buy, which puts you at risk if we see negative inflation, like we saw in the recent past...
I musta missed that Happyras..... When did we have deflation in the recent past?
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Old 06-20-2022, 12:57 PM   #13
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... But I wouldn't rely on them in the slightest for protection against high inflation. ...
Well, IMO once one has maxed on the I-Bonds, TIPS are the best thing going. You have to own enough of them to have a meaningful effect on your portfolio. 5% won't do it. You also have to remember that the government collects income taxes on the calorie-free inflation increases. But even with the income taxes I would argue that their protection is far more than "slight."

As investments, if you don't assign any value to the inflation insurance aspect and you are in a low-inflation period, they are not great. But I am not aware of any kind of insurance that doesn't involve someone paying a premium in order to get it.
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Old 06-20-2022, 01:00 PM   #14
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We are not at high inflation yet , so the issues I mentioned are not happening yet
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Old 06-20-2022, 01:08 PM   #15
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To me the biggest negative of TIPS is you have interest rate risk. This may seem curious but the market places a value on the interest stream and the face value of TIPS just like almost any other bond. So the price varies which can cancel out the inflation protection.

An attractive feature of I-bonds is the price does not vary.

TIPS are an imperfect hedge and the more I have looked at them, the less value I see compared to comparable treasuries and especially compared to I-bonds (though they have other, different limitations.

Good investing.
I bonds are better but they have the annual limits. Right now with high inflation and bond funds and stocks tanking, what asset class is doing better than TIPS and I bonds? Most experts recommend a diversified portfolio with a mix of asset classes that each perform well under different economic conditions. TIPS with 2% real yields are earning around 10.5% currently, while bond funds have lost 12% with a good chance of even higher future losses as the Fed continues to raise interest rates. TIPS are doing 22.5% better than many bond funds right now. Are they going to do 22.5% better in times of low inflation? Of course not. There aren't any asset classes that I know of that do amazing in every market condition. That is the whole point of diversification.

TIPS aren't a good deflation hedge, but when deflation fears are high is the best time to buy, like buying TIPS on sale, to keep in the portfolio for future times like these. After 2008 the real yields were over 2%.

The price fluctuations only matter if you hold TIPS in a fund or sell prior to maturity. If you hold to maturity they get redeemed at par plus the accumulated inflation. Freedom56 has many good recent posts on this topic for nominal bonds, definitely worth a read. Bond ladders, whether TIPS or nominals, are not having the NAV meltdowns right now the funds are.
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Old 06-20-2022, 01:17 PM   #16
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We are not at high inflation yet , so the issues I mentioned are not happening yet
At what inflation level does your statement " ... I wouldn't rely on them in the slightest for protection against high inflation." become true? To me your statement makes no sense at all.

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... TIPS aren't a good deflation hedge ...
True enough, but there has really been no time in modern investment history where deflation was an issue. https://www.investopedia.com/ask/ans...us-history.asp YMMV but it is just not something that I worry about.
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Old 06-20-2022, 01:34 PM   #17
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True enough, but there has really been no time in modern investment history where deflation was an issue. https://www.investopedia.com/ask/ans...us-history.asp YMMV but it is just not something that I worry about.

Right, DH wants to really up our TIPS allocation even further as the chances of long term deflation are so low. Plus for us in times of deflation SS and pensions would stay the same while prices would drop, so deflation just isn't the same issue for retirees as long term high inflation.
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Old 06-20-2022, 02:49 PM   #18
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At what inflation level does your statement " ... I wouldn't rely on them in the slightest for protection against high inflation." become true? To me your statement makes no sense at all.

True enough, but there has really been no time in modern investment history where deflation was an issue. https://www.investopedia.com/ask/ans...us-history.asp YMMV but it is just not something that I worry about.
That depends on how inflation is effecting the dollar ..right now it isnít and the dollar is the strongest itís been
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Old 06-21-2022, 06:44 AM   #19
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I musta missed that Happyras..... When did we have deflation in the recent past?
I believed I read it was March of 2015, but the table below shows it was negative in Jan 2015 through April . Not for so long though...but then there was 2009

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2022 7.5 7.9 8.5 8.3 8.6 Avail.July13
2021 1.4 1.7 2.6 4.2 5.0 5.4 5.4 5.3 5.4 6.2 6.8 7.0 4.7
2020 2.5 2.3 1.5 0.3 0.1 0.6 1.0 1.3 1.4 1.2 1.2 1.4 1.2
2019 1.6 1.5 1.9 2.0 1.8 1.6 1.8 1.7 1.7 1.8 2.1 2.3 1.8
2018 2.1 2.2 2.4 2.5 2.8 2.9 2.9 2.7 2.3 2.5 2.2 1.9 2.4
2017 2.5 2.7 2.4 2.2 1.9 1.6 1.7 1.9 2.2 2.0 2.2 2.1 2.1
2016 1.4 1.0 0.9 1.1 1.0 1.0 0.8 1.1 1.5 1.6 1.7 2.1 1.3
2015 -0.1 0.0 -0.1 -0.2 0.0 0.1 0.2 0.2 0.0 0.2 0.5 0.7 0.1
2014 1.6 1.1 1.5 2.0 2.1 2.1 2.0 1.7 1.7 1.7 1.3 0.8 1.6
2013 1.6 2.0 1.5 1.1 1.4 1.8 2.0 1.5 1.2 1.0 1.2 1.5 1.5
2012 2.9 2.9 2.7 2.3 1.7 1.7 1.4 1.7 2.0 2.2 1.8 1.7 2.1
2011 1.6 2.1 2.7 3.2 3.6 3.6 3.6 3.8 3.9 3.5 3.4 3.0 3.2
2010 2.6 2.1 2.3 2.2 2.0 1.1 1.2 1.1 1.1 1.2 1.1 1.5 1.6
2009 0 0.2 -0.4 -0.7 -1.3 -1.4 -2.1 -1.5 -1.3 -0.2 1.8 2.7 -0.4
2008 4.3 4.0 4.0 3.9 4.2 5.0 5.6 5.4 4.9 3.7 1.1 0.1 3.8
2007 2.1 2.4 2.8 2.6 2.7 2.7 2.4 2.0 2.8 3.5 4.3 4.1 2.8
2006 4.0 3.6 3.4 3.5 4.2 4.3 4.1 3.8 2.1 1.3 2.0 2.5 3.2
2005 3.0 3.0 3.1 3.5 2.8 2.5 3.2 3.6 4.7 4.3 3.5 3.4 3.4
2004 1.9 1.7 1.7 2.3 3.1 3.3 3.0 2.7 2.5 3.2 3.5 3.3 2.7
2003 2.6 3.0 3.0 2.2 2.1 2.1 2.1 2.2 2.3 2.0 1.8 1.9 2.3
2002 1.1 1.1 1.5 1.6 1.2 1.1 1.5 1.8 1.5 2.0 2.2 2.4 1.6
2001 3.7 3.5 2.9 3.3 3.6 3.2 2.7 2.7 2.6 2.1 1.9 1.6 2.8
2000 2.7 3.2 3.8 3.1 3.2 3.7 3.7 3.4 3.5 3.4 3.4 3.4 3.4
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