Why isnt everyone buying TIPS?
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Why isnt everyone buying TIPS?
Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
Re: Why isnt everyone buying TIPS?
Few reasons off top of my head:
1. The way that TIPS tracks inflation may differ from "actual" inflation. E.g. there's been concern that the inflation rate doesn't adequately take into account rise in housing costs.
2. The TIPS premium over inflation is extremely low. TIPS are also considered one of the lowest risk investment products. Most people want to get a higher return than just barely beating inflation, and have a risk appetite higher than TIPS.
3. (Building on #2) Equities and bonds are typically priced to beat inflation already. Due to risk, they may not always happen (which is why the risk premium exists in the first place), but over the long run they should.
1. The way that TIPS tracks inflation may differ from "actual" inflation. E.g. there's been concern that the inflation rate doesn't adequately take into account rise in housing costs.
2. The TIPS premium over inflation is extremely low. TIPS are also considered one of the lowest risk investment products. Most people want to get a higher return than just barely beating inflation, and have a risk appetite higher than TIPS.
3. (Building on #2) Equities and bonds are typically priced to beat inflation already. Due to risk, they may not always happen (which is why the risk premium exists in the first place), but over the long run they should.
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Re: Why isnt everyone buying TIPS?
They are great to hold the money you need to spend in retirement, e.g. a liability matching portfolio, but you are going to spend them down, not survive on the "income" they produce. They are to be consumed. If you expect a 4% withdrawal rate, then you'd better have (desired annual amount)/0.04 in TIPS. That's not investing, that's just storing.
Then ’tis like the breath of an unfee’d lawyer.
Re: Why isnt everyone buying TIPS?
Because I already bought all the TIPS I need?Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Why isnt everyone buying TIPS?
I think TIPS are yielding negative too.Robot Monster wrote: ↑Wed May 05, 2021 12:39 pmIf bonds are priced to beat inflation, then why is the 10yr Treasury yielding 1.59% if the 10 year breakeven is 2.42%? Isn't that a -0.83% real yield, equivalent to the 10yr TIPS yield?
Re: Why isnt everyone buying TIPS?
Bonds have expected inflation built into the price.
But you can still have negative real yield if interest rates and inflation are not in equilibrium.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Why isnt everyone buying TIPS?
Mostly.
30 YR has positive real yield (barely).
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Why isnt everyone buying TIPS?
CPI used to be an imperfect, but decent inflation index. The way CPI has been altered in the last 10-20 years has resulted in a very poor inflation gauge. Unfortunately, for investors TIPS are still linked to CPI, rendering them significantly underwhelming as an inflation hedging investment. I'm more interested in maintaining purchasing power parity, not keeping pace with whatever CPI tracks in its current form.Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
Re: Why isnt everyone buying TIPS?
That's how I use them (see sig), alternating ladder rungs with STRIPS.Dude2 wrote: ↑Wed May 05, 2021 12:40 pm They are great to hold the money you need to spend in retirement, e.g. a liability matching portfolio, but you are going to spend them down, not survive on the "income" they produce. They are to be consumed. If you expect a 4% withdrawal rate, then you'd better have (desired annual amount)/0.04 in TIPS. That's not investing, that's just storing.
Or, rather, I should say will use them -- the LMP portfolio is bought, but I'm not retired yet.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Why isnt everyone buying TIPS?
I don't hold TIPS as I have a few years worth of spending ability with my Series I-Bonds. I also have a boatload of Short-term Treasury Index mutual fund that wouldn't be as affected as other bonds/bond funds, though they certainly would decline some in NAV.
Finally, I have precious metals in the form of gold and silver coins, both collectable and bullion form. Another few years of living expenses, perhaps.
I lived thru the period of time where inflation produced the interest rate of 11.5% on our first mortgage. Of course wife and I were both employed with good salaries at MegaCorp.
Still, we are in a better financial condition than when we were employed, assuming inflation doesn't drag on for decades.
Broken Man 1999
Finally, I have precious metals in the form of gold and silver coins, both collectable and bullion form. Another few years of living expenses, perhaps.
I lived thru the period of time where inflation produced the interest rate of 11.5% on our first mortgage. Of course wife and I were both employed with good salaries at MegaCorp.
Still, we are in a better financial condition than when we were employed, assuming inflation doesn't drag on for decades.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Re: Why isnt everyone buying TIPS?
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Re: Why isnt everyone buying TIPS?
One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
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Re: Why isnt everyone buying TIPS?
Speaking generally about the amount of TIPS one might have in one's portfolio, Vineviz created a "very rough rule of thumb, in table form":
LTT = Long-term Treasuries
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
source
Code: Select all
Stocks LTT TIPS STIG
100% 0% 0% 0%
90% 10% 0% 0%
80% 20% 0% 0%
70% 20% 10% 0%
60% 20% 20% 0%
50% 20% 30% 0%
40% 10% 40% 10%
30% 0% 50% 20%
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
source
Last edited by Robot Monster on Wed May 05, 2021 1:01 pm, edited 1 time in total.
Re: Why isnt everyone buying TIPS?
Well said. I totally agree.BJJ_GUY wrote: ↑Wed May 05, 2021 12:46 pm CPI used to be an imperfect, but decent inflation index. The way CPI has been altered in the last 10-20 years has resulted in a very poor inflation gauge. Unfortunately, for investors TIPS are still linked to CPI, rendering them significantly underwhelming as an inflation hedging investment. I'm more interested in maintaining purchasing power parity, not keeping pace with whatever CPI tracks in its current form.
Re: Why isnt everyone buying TIPS?
Never base your investment policy on fear or greed.Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
That said, TIPS are pretty close to a risk-free asset for most investors so there's little danger in putting most (if not all) your bonds into TIPS.
Why isn't everyone buying TIPS? Not everyone is equally sensitive to inflation risk, for one thing. Not everyone understands TIPS and the benefits they provide for a second thing. Finally, somewhat related to the second point but also somewhat distinct, there's a sizable subculture organized around inflation-related conspiracy theories.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Why isnt everyone buying TIPS?
You may not be buying any, but lumber has gone up OVER 500% in the last year.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
https://finance.yahoo.com/quote/LBS%3DF/
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Re: Why isnt everyone buying TIPS?
Dad, is that you?gwe67 wrote: ↑Wed May 05, 2021 1:05 pmYou may not be buying any, but lumber has gone up OVER 500% in the last year.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
https://finance.yahoo.com/quote/LBS%3DF/
My dad has told me this five times this month. It is becoming a running joke.
No. I own my current house and don’t plan to build one anytime soon. Or build anything else made of wood. So I don’t need TIPS to protect me from skyrocketing lumber prices.
My own CPI would be more sensitive to things like eating out and veterinary bills. Maybe airfare and hotel prices soon.
Re: Why isnt everyone buying TIPS?
First, you're assuming that just because "bright people say it" that it is legitimately good market advice. In the last 20 years, Buffet has underperformed the market for years.Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
But, let's just assume you're correct and massive inflation is coming. Equities have been, historically, a reliable hedge.
If you are simply looking for capital preservation, then maybe TIPS. But, that would only be if I was very old and very conservative.
Re: Why isnt everyone buying TIPS?
It is difficult to know why people do what they do, but if I read this page:Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
https://www.treasury.gov/resource-cente ... =realyield
correctly then one can lock in a 1%/year real LOSS by investing in 7-year and 10-year TIPS.
I can imagine how lots of folks would find "let's lock in a loss of 10% of our money over the next decade" to not sound as appealing as it clearly is
Re: Why isnt everyone buying TIPS?
Wow, I keep hearing about lumber but this is the first time I've seen something more substantive than anecdotes. We've all heard about timber as an alternative investment over the past ~15 years, made popular by the Yale endowment model, for example, and I suspect that this rise in lumber prices must be connected to that sort of investment/speculation. It fits with the across-the-board skyrocketing of so many other common (and less common) investment asset classes lately: stocks, bonds, real-estate, gold, trading cards, anything with a blockchain, etc.gwe67 wrote: ↑Wed May 05, 2021 1:05 pm You may not be buying any, but lumber has gone up OVER 500% in the last year.
https://finance.yahoo.com/quote/LBS%3DF/
Last edited by warner25 on Wed May 05, 2021 1:37 pm, edited 1 time in total.
Re: Why isnt everyone buying TIPS?
OP
I have been buying a lot of TIPS, even though people keep telling me I shouldn't.
In fact, my portfolio is currently drowning in TIPS ETFs.
30% VTIP
8% SCHP
My portfolio current YTD is below 2%, which might be the answer to your original question.
I have been buying a lot of TIPS, even though people keep telling me I shouldn't.
In fact, my portfolio is currently drowning in TIPS ETFs.
30% VTIP
8% SCHP
My portfolio current YTD is below 2%, which might be the answer to your original question.
Re: Why isnt everyone buying TIPS?
Lazynovice, I'm your father! (As Darth Vader would say).lazynovice wrote: ↑Wed May 05, 2021 1:14 pmDad, is that you?gwe67 wrote: ↑Wed May 05, 2021 1:05 pmYou may not be buying any, but lumber has gone up OVER 500% in the last year.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
https://finance.yahoo.com/quote/LBS%3DF/
My dad has told me this five times this month. It is becoming a running joke.
No. I own my current house and don’t plan to build one anytime soon. Or build anything else made of wood. So I don’t need TIPS to protect me from skyrocketing lumber prices.
My own CPI would be more sensitive to things like eating out and veterinary bills. Maybe airfare and hotel prices soon.
The increasing cost of new homes due to lumber cost also increases the value of existing homes. If nothing else, this should increase your property taxes. In my case, I'm looking at about $1,000 per year in additional property taxes.
"Lumber prices skyrocket causing new homes to cost $24,000 more"
https://www.msn.com/en-us/money/realest ... r-BB1fpuxs
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Re: Why isnt everyone buying TIPS?
Fair point, Dad. So far my county is not jacking up my assessed value, but it is coming next year.gwe67 wrote: ↑Wed May 05, 2021 1:36 pmLazynovice, I'm your father! (As Darth Vader would say).lazynovice wrote: ↑Wed May 05, 2021 1:14 pmDad, is that you?gwe67 wrote: ↑Wed May 05, 2021 1:05 pmYou may not be buying any, but lumber has gone up OVER 500% in the last year.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
https://finance.yahoo.com/quote/LBS%3DF/
My dad has told me this five times this month. It is becoming a running joke.
No. I own my current house and don’t plan to build one anytime soon. Or build anything else made of wood. So I don’t need TIPS to protect me from skyrocketing lumber prices.
My own CPI would be more sensitive to things like eating out and veterinary bills. Maybe airfare and hotel prices soon.
The increasing cost of new homes due to lumber cost also increases the value of existing homes. If nothing else, this should increase your property taxes. In my case, I'm looking at about $1,000 per year in additional property taxes.
"Lumber prices skyrocket causing new homes to cost $24,000 more"
https://www.msn.com/en-us/money/realest ... r-BB1fpuxs
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Re: Why isnt everyone buying TIPS?
Careful. This isn't a timber shortage. There's plenty of trees out there and raw timber prices havent been spiking. It's a lumber shortage driven in part by low production last year (producers assumed the homebuilding industry would crash) and high demand this year (everyone's building or modifying homes).warner25 wrote: ↑Wed May 05, 2021 1:31 pmWow, I keep hearing about lumber but this is the first time I've seen something more substantive than anecdotes. We've all heard about timber as an alternative investment over the past ~15 years, made popular by the Yale endowment model, for example, and I suspect that this rise in lumber prices must be connected to that sort of investment/speculation. It fits with the across-the-board skyrocketing of so many other common (and less common) investment asset classes lately: stocks, bonds, real-estate, gold, trading cards, anything with a blockchain, etc.gwe67 wrote: ↑Wed May 05, 2021 1:05 pm You may not be buying any, but lumber has gone up OVER 500% in the last year.
https://finance.yahoo.com/quote/LBS%3DF/
Re: Why isnt everyone buying TIPS?
TIPS protect against unexpected inflation. If the inflation "everyone" expects comes to pass, TIPS probably won't do any better than conventional treasuries.
There are always some goods or services experiencing a rapid price rise. Inflation, however, is a general rise in prices, not just some cherrypicked examples.
I'd expect an uptick in prices in the short-term. There have been a lot of disruptions due to the pandemic and some things will likely get much more expensive until supply chains and production normalize. Factories were shut down, businesses sold off inventory and didn't rebuild, etc. It will take some time to reverse these events. Once supply chains and productions adjust, we should go back to normal.
There are always some goods or services experiencing a rapid price rise. Inflation, however, is a general rise in prices, not just some cherrypicked examples.
I'd expect an uptick in prices in the short-term. There have been a lot of disruptions due to the pandemic and some things will likely get much more expensive until supply chains and production normalize. Factories were shut down, businesses sold off inventory and didn't rebuild, etc. It will take some time to reverse these events. Once supply chains and productions adjust, we should go back to normal.
Re: Why isnt everyone buying TIPS?
That kind of thinking only makes sense if you would absolutely never buy anything other than what you're currently buying, which I highly doubt. If I offered you a brand new mega-yacht for $1, you'd probably buy it yesterday (or if not due to personal aversion to boats or whatever, insert any fancy thing that piques your interest). The reason most people don't buy the fancy things they want is affordability (you may say lack of time or whatever, but in that case, you probably can't afford to buy your time back unless you're very wealthy). There are almost certainly things that given the right price, you would wish to buy, which are becoming less affordable to you over time. I don't see why you would ignore inflation just because it hasn't hit your spending patterns recently.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
Re: Why isnt everyone buying TIPS?
My plan was to load up my Roth IRA with individual TIPS but got interrupted as their rates turned negative (i.e. you had to pay more than face value to buy it). Right now only about 25% is allocated.
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Re: Why isnt everyone buying TIPS?
Well, my replacement wooden fence quote increased $200 from late February of this year. It might have increased simply because it could.
I couldn't proceed until neighbor behind us removed a stand of bamboo that was hanging over our fence and pushing it down. Plus he has a tree that is leaning over the fence, though it presents no danger to any structures. It isn't dead, just a leaner.
So, soon we will be a bit lighter in the wallet but sporting a nice new fence, hopefully it will last as long as the current one, or maybe even as long as we are alive.
Broken Man 1999
I couldn't proceed until neighbor behind us removed a stand of bamboo that was hanging over our fence and pushing it down. Plus he has a tree that is leaning over the fence, though it presents no danger to any structures. It isn't dead, just a leaner.
So, soon we will be a bit lighter in the wallet but sporting a nice new fence, hopefully it will last as long as the current one, or maybe even as long as we are alive.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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Re: Why isnt everyone buying TIPS?
Not sure I would put any type bonds/bond funds in a Roth IRA. I hold only equity funds in our Roth accounts. In my way of thinking, I don't want any investments in our Roth accounts that are slow growing, I want to maximize the tax-free growth, and equities fit better.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Re: Why isnt everyone buying TIPS?
It's about my risk tolerance. Up until recently I was 100% cash, treasuries, individual TIPS. Now I have about 25% of 401k in S&P500. If I had a TIPS fund there I would probably have chosen that.Broken Man 1999 wrote: ↑Wed May 05, 2021 2:25 pmNot sure I would put any type bonds/bond funds in a Roth IRA. I hold only equity funds in our Roth accounts. In my way of thinking, I don't want any investments in our Roth accounts that are slow growing, I want to maximize the tax-free growth, and equities fit better.
Broken Man 1999
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Re: Why isnt everyone buying TIPS?
It isn’t about what I can afford to buy or sacrifices I am making. It is a fair point that my basket of services will change over time. But will it ever match the CPI weightings? I don’t think so.dboeger1 wrote: ↑Wed May 05, 2021 1:54 pmThat kind of thinking only makes sense if you would absolutely never buy anything other than what you're currently buying, which I highly doubt. If I offered you a brand new mega-yacht for $1, you'd probably buy it yesterday (or if not due to personal aversion to boats or whatever, insert any fancy thing that piques your interest). The reason most people don't buy the fancy things they want is affordability (you may say lack of time or whatever, but in that case, you probably can't afford to buy your time back unless you're very wealthy). There are almost certainly things that given the right price, you would wish to buy, which are becoming less affordable to you over time. I don't see why you would ignore inflation just because it hasn't hit your spending patterns recently.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
CPI weights housing (which includes rent, utilities and insurance) at 42%. Housing costs are not anywhere close to 42% of my costs (unless you want to get into a theoretical case about imputed rent on my mortgage free house). I have all the house I need and want. And I think my current house is plenty of hedge against the actual housing portion of that inflation.
It weights food and beverages at 15%. We spend a much larger percentage of our spending than that.
Re: Why isnt everyone buying TIPS?
1. Don't want to deal with Treasury Direct.
2. Returns from TIPS wouldn't move my needle.
2. Returns from TIPS wouldn't move my needle.
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Re: Why isnt everyone buying TIPS?
I am not the only person who thinks there is a detectable anti-TIPS bias in the "mainstream" investment world. A wag in the forum--can't find it but it wasn't me--suggested that TIPS stands for "The Investment Professionals Shun."
My fixed income holdings are not 100% TIPS--my mutual fund holdings are about 60% in the Vanguard Inflation Protected Securities fund, 40% in Total Bond--because don't like to being an enthusiast or a true believer, I don't like to be too far out of the mainstream. I don't believe in One Asset to Rule Them All. I can give various reasons for thinking various issues with TIPS might make them somehow detectably inferior to other bonds. The most obvious is that they been less liquid than regular nominal Treasuries, which was probably the cause of a weird 10%-up-and-10%-down jolt around 2008-2009. The result is that TIPS have have had lower risk-adjusted return than nominal bonds in the past.
But it's all in the range of "maybe could do better," not anything terrible about them. People strain at gnat-like imperfections in TIPS, but are willing to swallow the camel of emerging markets bonds, despite EM bonds taking a -40% (!) plunge in 1998. Nor does it make any sense to me to say "if I can't get an exact match to my personal CPI, I don't want any CPI adjustment at all."
I think a heavy weighting of TIPS makes perfect sense, and at the very worst is no worse than "suboptimal."
As with series I savings bonds, the farther away you get from people who make their living selling investments, the more you hear about TIPS. I think the animus against TIPS is simply that there is no way for the mainstream investment industry to make much money from them.
Some people like boost "stocks" over "bonds," and like to attack "bonds" on the grounds of inflation risk. They don't like to even mention TIPS because they complicate a simplistic story.
My fixed income holdings are not 100% TIPS--my mutual fund holdings are about 60% in the Vanguard Inflation Protected Securities fund, 40% in Total Bond--because don't like to being an enthusiast or a true believer, I don't like to be too far out of the mainstream. I don't believe in One Asset to Rule Them All. I can give various reasons for thinking various issues with TIPS might make them somehow detectably inferior to other bonds. The most obvious is that they been less liquid than regular nominal Treasuries, which was probably the cause of a weird 10%-up-and-10%-down jolt around 2008-2009. The result is that TIPS have have had lower risk-adjusted return than nominal bonds in the past.
But it's all in the range of "maybe could do better," not anything terrible about them. People strain at gnat-like imperfections in TIPS, but are willing to swallow the camel of emerging markets bonds, despite EM bonds taking a -40% (!) plunge in 1998. Nor does it make any sense to me to say "if I can't get an exact match to my personal CPI, I don't want any CPI adjustment at all."
I think a heavy weighting of TIPS makes perfect sense, and at the very worst is no worse than "suboptimal."
As with series I savings bonds, the farther away you get from people who make their living selling investments, the more you hear about TIPS. I think the animus against TIPS is simply that there is no way for the mainstream investment industry to make much money from them.
Some people like boost "stocks" over "bonds," and like to attack "bonds" on the grounds of inflation risk. They don't like to even mention TIPS because they complicate a simplistic story.
Last edited by nisiprius on Wed May 05, 2021 2:58 pm, edited 1 time in total.
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Re: Why isnt everyone buying TIPS?
I buy TIPS through my brokerage account.
And, you're right, they don't meaningfully increase my returns -- but that's not the role they play in my port.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Why isnt everyone buying TIPS?
Yes, I was confused. I did own VTIP for a while, but sold it when I simplified to three funds. I believe my BND ETF includes TIPs to some degree, but don't really know how much.
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Re: Why isnt everyone buying TIPS?
gwe67 wrote: ↑Wed May 05, 2021 3:14 pmYes, I was confused. I did own VTIP for a while, but sold it when I simplified to three funds. I believe my BND ETF includes TIPs to some degree, but don't really know how much.
Your BND ETF does not own any TIPS.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Why isnt everyone buying TIPS?
It depends.Turkishcoffee wrote: ↑Wed May 05, 2021 12:15 pm Market timing comments aside, there are a lot of bright people out there such as Warren Buffett, m El Aian who say inflation is here and coming.
If I fear inflation, why wouldnt I pile all my non equities into TIPS?
Social Security increases with inflation.
If you own your residence, it might help with inflation.
But you already knew that.
TIPs doesn't pay out monthly. Some high quality funds are out there that still are paying around at a 2% annual rate....monthly.
At the present time, I own no TIPS. For now, high quality fixed income works for me.
In a few years, I'm considering doing a non-rolling TIPS ladder.
Re: Why isnt everyone buying TIPS?
Because I think I can do better and I’m willing to risk it.
I could be wrong though....
I could be wrong though....
Re: Why isnt everyone buying TIPS?
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Re: Why isnt everyone buying TIPS?
Before tax ramifications that is.....Robot Monster wrote: ↑Wed May 05, 2021 12:39 pmIf bonds are priced to beat inflation, then why is the 10yr Treasury yielding 1.59% if the 10 year breakeven is 2.42%? Isn't that a -0.83% real yield, equivalent to the 10yr TIPS yield?
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Re: Why isnt everyone buying TIPS?
I have some sympathy for the above view, but also some ambivalence.
On the one hand: I personally know and respect Zvi Bodie, a former colleague of my late husband, who has been a huge TIPS evangelist for decades. And his widely used and respected finance textbooks (now in their 12th edition) would certainly seem to place him in the mainstream.
But thanks to Bogleheads, I have also come to know and respect Bill Bernstein, who wrote this cautionary note memorable piece.
And Bernstein's jaundiced view won out for me for about five years of lackluster TIPS performance, particularly bolstered by this Paul Solman piece, in which even Zvi Bodie seemed to be cooling off quite a bit.
However, some years later, in late 2018, if I recall correctly, real yields on intermediate TIPS funds had risen briefly to around 1% and I decided okay! I am going for it and decided to modify my IPS to put about 25% of my portfolio in Schwab's intermediate TIPS fund and call it a day and just hang on and not look back.
Since then real yields have plummeted to negative levels heretofore unseen but of course the NAV of my holdings rose to offset this. It's all inside my Roth IRA so the tax inefficiency of TIPS is not an issue.
I won't be buying any more TIPS (though I did also just pull the trigger on $10,000 in I bonds in late April, which Zvi Bodie is promoting again) but I am planning to hold on to those TIPS in my Roth IRA. I also have some equities in my Roth but the TIPS are an anchor that lets me sleep well at night, not too worried about inflation taking off or my equities imploding.
Bottom line, I agree with nisiprius when he says a good chunk of TIPS "makes perfect sense and is at worst suboptimal" at least for those of us past our accumulation years.
Last edited by dodecahedron on Wed May 05, 2021 4:14 pm, edited 2 times in total.
Re: Why isnt everyone buying TIPS?
My assessment just got bumped up.lazynovice wrote: ↑Wed May 05, 2021 1:39 pm
Fair point, Dad. So far my county is not jacking up my assessed value, but it is coming next year.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Why isnt everyone buying TIPS?
Bill Bernstein also said....viewtopic.php?p=5160087#p5160087dodecahedron wrote: ↑Wed May 05, 2021 4:03 pm But thanks to Bogleheads, I have also come to know and respect Bill Bernstein, who wrote this cautionary note memorable piece.
And Bernstein's jaundiced view won out for me for about five years of lackluster TIPS performance, particularly bolstered by this Paul Solman piece, in which even Zvi Bodie seemed to be cooling off quite a bit.
Re: Why isnt everyone buying TIPS?
Already at the max according to IPS. If you believe things are going to continue as is, buy TIPS. I hold TIPS funds, not individual though.
I always thought TIPS was supposed to be part of the bonds side of a portfolio?
I always thought TIPS was supposed to be part of the bonds side of a portfolio?
Re: Why isnt everyone buying TIPS?
He's right, the current prices and yields are atrocious.hudson wrote: ↑Wed May 05, 2021 4:33 pm
Bill Bernstein also said....viewtopic.php?p=5160087#p5160087
But I'm buying them with inflated stock money, which will probably undergo valuation contraction in the future, anyway.
So I'm using inflated stock monopoly money to overbuy negative real returning inflation-indexed bonds.
That's probably a wash, at some level.
If I was using bubbly Dogecoin money, I'd definitely be ahead.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Why isnt everyone buying TIPS?
Hmm, interesting. Your Bernstein quote link above is from April 2020, when he wrote:hudson wrote: ↑Wed May 05, 2021 4:33 pmBill Bernstein also said....viewtopic.php?p=5160087#p5160087dodecahedron wrote: ↑Wed May 05, 2021 4:03 pm But thanks to Bogleheads, I have also come to know and respect Bill Bernstein, who wrote this cautionary note memorable piece.
And Bernstein's jaundiced view won out for me for about five years of lackluster TIPS performance, particularly bolstered by this Paul Solman piece, in which even Zvi Bodie seemed to be cooling off quite a bit.
I agree with his characterization of price and real yields at the time as "atrocious." Fortunately, I had bought my TIPS holdings back in late 2018, were not nearly so bad, slightly over 1%, which was the highest they had been in ten years! Props to the TIPSWatch Blog for pointing that out to me at the time. I decided that was the time to take the plunge and hold for the long term inflation insurance.Bill Bernstein wrote:Finally, TIPS are usually a fine holding for defeasing years and decades of upcoming consumption needs, though their current prices and yields are atrocious.
This subsequent graph makes me feel like my TIPS was happily very fortunate. I had no way of knowing that at the time, just felt like 1.1% real yield on TIPS was good enough and was not going risk holding out longer in the hope they'd get even better. Maybe they will some day but I am content to hold for now.
Last edited by dodecahedron on Wed May 05, 2021 7:37 pm, edited 1 time in total.
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Re: Why isnt everyone buying TIPS?
I have some IP bond funds in my 401k, but I'm mostly relying on equities and my (future) mortgage to hedge against inflation.
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Re: Why isnt everyone buying TIPS?
I don’t think lumber prices are the main cause of your property taxes increasing by $1,000 per year.gwe67 wrote: ↑Wed May 05, 2021 1:36 pmLazynovice, I'm your father! (As Darth Vader would say).lazynovice wrote: ↑Wed May 05, 2021 1:14 pmDad, is that you?gwe67 wrote: ↑Wed May 05, 2021 1:05 pmYou may not be buying any, but lumber has gone up OVER 500% in the last year.lazynovice wrote: ↑Wed May 05, 2021 12:58 pm One reason is that I think inflation fears are being blown out of proportion:
viewtopic.php?f=10&t=345985&p=5944345#p5944345
I have not seen my own CPI change much- if anything it is staying low. Other than property insurance and gasoline, I can’t think of anything that costs me more this month than last May.
https://finance.yahoo.com/quote/LBS%3DF/
My dad has told me this five times this month. It is becoming a running joke.
No. I own my current house and don’t plan to build one anytime soon. Or build anything else made of wood. So I don’t need TIPS to protect me from skyrocketing lumber prices.
My own CPI would be more sensitive to things like eating out and veterinary bills. Maybe airfare and hotel prices soon.
The increasing cost of new homes due to lumber cost also increases the value of existing homes. If nothing else, this should increase your property taxes. In my case, I'm looking at about $1,000 per year in additional property taxes.
"Lumber prices skyrocket causing new homes to cost $24,000 more"
https://www.msn.com/en-us/money/realest ... r-BB1fpuxs
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