Now that long TIPS yields are 60 bp off their highs I will…

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Jaylat
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Jaylat »

#Cruncher wrote: Sat May 27, 2023 11:47 pm
oxothuk wrote: Sat May 27, 2023 7:06 pm
dcabler wrote: Sat May 27, 2023 5:58 pm
exodusing wrote: Sat May 27, 2023 11:29 am Since taxes are a consideration, here's a post by #cruncher on why it's better to hold TIPS in an IRA than in taxable. viewtopic.php?p=2100674#p2100674 ...
Yep - things would need to get pretty hosed in my portfolio for me to hold any otherwise taxable bonds in anything but my IRA. ...
That's the beauty of I-bonds. They are a great way to extend your tax-deferred space.
I often hear on the forum that I Bonds (and EE Bonds) "extend your tax-deferred space". This is only partially true. I Bonds get better tax treatment than a regular taxable account; but not as good as a Roth or Traditional IRA. To show this, I've extended ( :wink: ) the table from the 2014 post exodusing references to include an I Bond having a 0% fixed rate to match the assumed 0% real yield of the TIPS in the Roth, TIRA, and Taxable cases.

Note that the I Bond's performance for both 2% and 5% inflation is better than Taxable but worse than either IRA. And like the Taxable case, its real after tax return deteriorates as inflation increases -- unlike the case with the Roth or traditional IRA.

Code: Select all

Pretax wages              1,000
Years                        30
Federal tax                 25%
State tax                    5%
                            Roth IRA         Trad IRA          Taxable          I Bonds
                          ------------     ------------     ------------     ------------
CPI Annual Change         2.00%  5.00%     2.00%  5.00%     2.00%  5.00%     2.00%  5.00%
a  Growth Rate            2.00%  5.00%     2.00%  5.00%     1.50%  3.75%     2.00%  5.00%
b  After Tax Investment     700    700     1,000  1,000       700    700       700    700
c  Grows To               1,268  3,025     1,811  4,322     1,094  2,112     1,268  3,025
d  Tax at End                -      -        543  1,297        -      -         67    506
e  After Tax              1,268  3,025     1,268  3,025     1,094  2,112     1,201  2,519
f  Real After Tax           700    700       700    700       604    489       663    583
If you wish to duplicate the calculations with other assumptions: Select All, Copy, and Paste [*] the following at cell A1 of an empty Excel sheet:

Code: Select all

Pretax wages	1000
Years	30
Federal tax	0.25
State tax	0.05
	Roth	IRA	Trad	IRA	Tax	able	I	Bonds
CPI Annual Change	0.02	0.05	=B6	=C6	=D6	=E6	=F6	=G6
a  Growth Rate	=B6	=C6	=D6	=E6	=F6*(1-$B3)	=G6*(1-$B3)	=H6	=I6
b  After Tax Investment	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1	=$B1	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)
c  Grows To	=B8*(1+B7)^$B2	=C8*(1+C7)^$B2	=D8*(1+D7)^$B2	=E8*(1+E7)^$B2	=F8*(1+F7)^$B2	=G8*(1+G7)^$B2	=H8*(1+H7)^$B2	=I8*(1+I7)^$B2
d  Tax at End	0	0	=D9*($B3+$B4)	=E9*($B3+$B4)	0	0	=$B3*(H9-$B1)	=$B3*(I9-$B1)
e  After Tax	=B9-B10	=C9-C10	=D9-D10	=E9-E10	=F9-F10	=G9-G10	=H9-H10	=I9-I10
f  Real After Tax	=B11/(1+B6)^$B2	=C11/(1+C6)^$B2	=D11/(1+D6)^$B2	=E11/(1+E6)^$B2	=F11/(1+F6)^$B2	=G11/(1+G6)^$B2	=H11/(1+H6)^$B2	=I11/(1+I6)^$B2
* If you have trouble pasting, try "Paste Special" and "Text".
Thanks, this is an extremely helpful analysis. I'm surprised that Roth and IRA's are indeed better in these cases.

However, for someone like me who's alternative is having no tax deferred space at all, I Bonds are pretty darn good. They also have the advantage vs IRA's of being redeemable at any time, not being subject to RMD's, and of course the all-valuable option to put at par. Not sure how to quantify these advantages, but tax-wise the ability to redeem at any time gives the I Bond holder much more flexibility to manage his tax liabilities.

An I Bond holder under age 59 can choose to redeem his all I Bonds in a year where tax losses might offset any gains. You can't do that with TIPS in an IRA.

In a way, I think you’re comparing apples and oranges; for many, putting money in an IRA vs. buying I Bonds is not an “either or” proposition. If you have the ability to fund an IRA you’re going to use it, whether you buy TIPS or not.
erp
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by erp »

#Cruncher wrote: Sat May 27, 2023 11:47 pm
oxothuk wrote: Sat May 27, 2023 7:06 pm
dcabler wrote: Sat May 27, 2023 5:58 pm
exodusing wrote: Sat May 27, 2023 11:29 am Since taxes are a consideration, here's a post by #cruncher on why it's better to hold TIPS in an IRA than in taxable. viewtopic.php?p=2100674#p2100674 ...
Yep - things would need to get pretty hosed in my portfolio for me to hold any otherwise taxable bonds in anything but my IRA. ...
That's the beauty of I-bonds. They are a great way to extend your tax-deferred space.
I often hear on the forum that I Bonds (and EE Bonds) "extend your tax-deferred space". This is only partially true. I Bonds get better tax treatment than a regular taxable account; but not as good as a Roth or Traditional IRA. To show this, I've extended ( :wink: ) the table from the 2014 post exodusing references to include an I Bond having a 0% fixed rate to match the assumed 0% real yield of the TIPS in the Roth, TIRA, and Taxable cases.

Note that the I Bond's performance for both 2% and 5% inflation is better than Taxable but worse than either IRA. And like the Taxable case, its real after tax return deteriorates as inflation increases -- unlike the case with the Roth or traditional IRA.

Code: Select all

Pretax wages              1,000
Years                        30
Federal tax                 25%
State tax                    5%
                            Roth IRA         Trad IRA          Taxable          I Bonds
                          ------------     ------------     ------------     ------------
CPI Annual Change         2.00%  5.00%     2.00%  5.00%     2.00%  5.00%     2.00%  5.00%
a  Growth Rate            2.00%  5.00%     2.00%  5.00%     1.50%  3.75%     2.00%  5.00%
b  After Tax Investment     700    700     1,000  1,000       700    700       700    700
c  Grows To               1,268  3,025     1,811  4,322     1,094  2,112     1,268  3,025
d  Tax at End                -      -        543  1,297        -      -         67    506
e  After Tax              1,268  3,025     1,268  3,025     1,094  2,112     1,201  2,519
f  Real After Tax           700    700       700    700       604    489       663    583
If you wish to duplicate the calculations with other assumptions: Select All, Copy, and Paste [*] the following at cell A1 of an empty Excel sheet:

Code: Select all

Pretax wages	1000
Years	30
Federal tax	0.25
State tax	0.05
	Roth	IRA	Trad	IRA	Tax	able	I	Bonds
CPI Annual Change	0.02	0.05	=B6	=C6	=D6	=E6	=F6	=G6
a  Growth Rate	=B6	=C6	=D6	=E6	=F6*(1-$B3)	=G6*(1-$B3)	=H6	=I6
b  After Tax Investment	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1	=$B1	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)	=$B1*(1-$B3-$B4)
c  Grows To	=B8*(1+B7)^$B2	=C8*(1+C7)^$B2	=D8*(1+D7)^$B2	=E8*(1+E7)^$B2	=F8*(1+F7)^$B2	=G8*(1+G7)^$B2	=H8*(1+H7)^$B2	=I8*(1+I7)^$B2
d  Tax at End	0	0	=D9*($B3+$B4)	=E9*($B3+$B4)	0	0	=$B3*(H9-$B1)	=$B3*(I9-$B1)
e  After Tax	=B9-B10	=C9-C10	=D9-D10	=E9-E10	=F9-F10	=G9-G10	=H9-H10	=I9-I10
f  Real After Tax	=B11/(1+B6)^$B2	=C11/(1+C6)^$B2	=D11/(1+D6)^$B2	=E11/(1+E6)^$B2	=F11/(1+F6)^$B2	=G11/(1+G6)^$B2	=H11/(1+H6)^$B2	=I11/(1+I6)^$B2
* If you have trouble pasting, try "Paste Special" and "Text".
I think there's a miscalculation in the ibond "Tax at End" column. It should use $700 as the basis and not $1000.

And that's the main problem I have when Mel and others keep saying ibonds extend tax-deferred space. At most you can say they provide tax-deferred compounding of growth, since you aren't deferring the tax on the original income used to buy the ibond like you would with a trad 401k.

That term loses all meaning if they continue to use it this way. I could even say I have infinite "tax-deferred space" using this definition, since I can buy an unlimited amount of BRKA and only pay tax on the growth when I sell.
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#Cruncher
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by #Cruncher »

erp wrote: Sun May 28, 2023 12:57 pm
#Cruncher wrote: Sat May 27, 2023 11:47 pm ...

Code: Select all

                            Roth IRA         Trad IRA          Taxable          I Bonds
                          ------------     ------------     ------------     ------------
...
d  Tax at End                -      -        543  1,297        -      -         67    506
e  After Tax              1,268  3,025     1,268  3,025     1,094  2,112     1,201  2,519
f  Real After Tax           700    700       700    700       604    489       663    583
...
I think there's a miscalculation in the ibond "Tax at End" column. It should use $700 as the basis and not $1000.
Good catch, erp. I've corrected my post. Here are the three revised rows. The I Bond real after tax return is worse than I originally reported, but still lies between that of the IRA and Taxable cases.

Code: Select all

                            Roth IRA         Trad IRA          Taxable          I Bonds
                          ------------     ------------     ------------     ------------
...
d  Tax at End                -      -        543  1,297        -      -        142    581
e  After Tax              1,268  3,025     1,268  3,025     1,094  2,112     1,126  2,444
f  Real After Tax           700    700       700    700       604    489       622    565
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watchnerd
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

dcabler wrote: Sun May 28, 2023 5:32 am
There is no question in my mind that purchasing an actual ladder gives one absolutely deterministic inflation adjusted income after you purchase it, where that income is known for the days that coupons pay out and on the days that bonds mature. Doing this with bond funds does have some noise around it, no question. There are ways to improve that, but it will never be as deterministic as an actual bond ladder. BobK gave some great reasons why, for him, using bond funds is good enough for his purposes. Some of the same reasons apply for me as well. I also like that I can make the withdrawals on my schedule (quarterly) and not on the schedule of coupon payments/bonds maturing.
Also there is the ER drag on the funds.

VTIP isn't too bad at .04.

But LTPZ at .20....

With TIPS in the 1.4-1.7% real yield range, that .20 ER is expensive.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
dcabler
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by dcabler »

watchnerd wrote: Sun May 28, 2023 2:05 pm
dcabler wrote: Sun May 28, 2023 5:32 am
There is no question in my mind that purchasing an actual ladder gives one absolutely deterministic inflation adjusted income after you purchase it, where that income is known for the days that coupons pay out and on the days that bonds mature. Doing this with bond funds does have some noise around it, no question. There are ways to improve that, but it will never be as deterministic as an actual bond ladder. BobK gave some great reasons why, for him, using bond funds is good enough for his purposes. Some of the same reasons apply for me as well. I also like that I can make the withdrawals on my schedule (quarterly) and not on the schedule of coupon payments/bonds maturing.
Also there is the ER drag on the funds.

VTIP isn't too bad at .04.

But LTPZ at .20....

With TIPS in the 1.4-1.7% real yield range, that .20 ER is expensive.
Unless you're trying to do this for an extremely long time, you never own 100% LTPZ. With my current combination of LTPZ & SCHP, my net is around 0.1% and it gets better with each quarter I perform a rebalance as I own more SCHP and less LTPZ. I count this among the many reasons to not just hold LTPZ and VTIP for the entire time, but to hold LTPZ/SCHP and then SCHP/VTIP (or STIP). It gets you out of the more expensive LTPZ sooner and it better approximates the actual yield curve as shown in this post: viewtopic.php?p=6870064#p6870064

Cheers
Last edited by dcabler on Sun May 28, 2023 3:25 pm, edited 1 time in total.
oxothuk
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by oxothuk »

watchnerd wrote: Sun May 28, 2023 2:05 pm But LTPZ at .20....

With TIPS in the 1.4-1.7% real yield range, that .20 ER is expensive.
Why not just buy some individual 2045 TIPS instead? You could blend them together with short and intermediate TIPS funds to get whatever portfolio duration you are after. One time cost of bid-ask spread rather than 20bp per year.
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watchnerd
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

oxothuk wrote: Sun May 28, 2023 2:57 pm
watchnerd wrote: Sun May 28, 2023 2:05 pm But LTPZ at .20....

With TIPS in the 1.4-1.7% real yield range, that .20 ER is expensive.
Why not just buy some individual 2045 TIPS instead? You could blend them together with short and intermediate TIPS funds to get whatever portfolio duration you are after. One time cost of bid-ask spread rather than 20bp per year.
That's what I do.

I don't find the arguments in favor of funds to be compelling.

Setting up a TIPS ladder is pretty easy.

But I think some of the friction to buying individual TIPS is due to:

1. Inexperience in buying individual bonds
2. Inability to buy individual bonds in some tax sheltered accounts for some people
3. Desire to regularly DCA into TIPs funds (like stocks or TBM), instead of making big stair-step purchases of ladder rungs
4. Concern that buying more TIPS when real yields are favorable is "market timing", and thus a break from BH orthodoxy some find uncomfortable
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Prudence
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Prudence »

Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% real income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
Last edited by Prudence on Sun May 28, 2023 5:04 pm, edited 1 time in total.
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watchnerd
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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JoMoney
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by JoMoney »

Since this thread seems to be active again discussing TIPS, I'm going to point to the pretty handy
https://tipsladder.com
tool that a Boglehead made and discusses over here:
viewtopic.php?t=394380
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
2pedals
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by 2pedals »

JoMoney wrote: Sun May 28, 2023 6:56 pm Since this thread seems to be active again discussing TIPS, I'm going to point to the pretty handy
https://tipsladder.com
tool that a Boglehead made and discusses over here:
viewtopic.php?t=394380
Thanks for the information, a very well done tool.

If not already, I bet someone could come out with a tool for simulating a ladder using mutual funds and share it on BHs. Something that would get updated when funding, withdrawals and rebalancing to get a target duration. Some important variables include (not all inclusive), fund durations, fund real yields, CPI-U, selection of funds for averaging durations and real liability amounts plus dates of liabilities. I have a basic spreadsheet for my personal usage and I am too embarrassed to share. I have been ignoring the real yields and plan on withdrawing them over time as extra. I also need to include an assumed 5% reduction in non-COLAed pension to help me define liabilities.

I like the flexibility of using mutual funds and I don’t wish to be locked-in but I do value having some funds protected from inflation. My expenses in retirement have been extremely variable. Real life stuff is variable and has included home repairs/upgrades, toys, property taxes, travel, etc. Over time the desire to update plans are to be expected.
dcabler
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by dcabler »

2pedals wrote: Sun May 28, 2023 8:38 pm
JoMoney wrote: Sun May 28, 2023 6:56 pm Since this thread seems to be active again discussing TIPS, I'm going to point to the pretty handy
https://tipsladder.com
tool that a Boglehead made and discusses over here:
viewtopic.php?t=394380
Thanks for the information, a very well done tool.

If not already, I bet someone could come out with a tool for simulating a ladder using mutual funds and share it on BHs. Something that would get updated when funding, withdrawals and rebalancing to get a target duration. Some important variables include (not all inclusive), fund durations, fund real yields, CPI-U, selection of funds for averaging durations and real liability amounts plus dates of liabilities. I have a basic spreadsheet for my personal usage and I am too embarrassed to share. I have been ignoring the real yields and plan on withdrawing them over time as extra. I also need to include an assumed 5% reduction in non-COLAed pension to help me define liabilities.

I like the flexibility of using mutual funds and I don’t wish to be locked-in but I do value having some funds protected from inflation. My expenses in retirement have been extremely variable. Real life stuff is variable and has included home repairs/upgrades, toys, property taxes, travel, etc. Over time the desire to update plans are to be expected.
A wiki on the entire technique and an example spreadsheet to go with it would be a great idea. This topic has been discussed for quite a number of years now and I'm surprised it hasn't been done already. Probably because like you, many of us have our own spreadsheets which aren't really set up for general consumption (and that's putting it nicely). :D

Cheers!
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by TheTimeLord »

It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use 6 month rungs, as well.
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dcabler
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by dcabler »

JoMoney wrote: Sun May 28, 2023 6:56 pm Since this thread seems to be active again discussing TIPS, I'm going to point to the pretty handy
https://tipsladder.com
tool that a Boglehead made and discusses over here:
viewtopic.php?t=394380
There's also this one from #cruncher which has been around for a while now.
https://www.eyebonds.info/downloads/pag ... adder.html

Cheers.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Prudence »

watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
oxothuk
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by oxothuk »

TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by oxothuk »

Prudence wrote: Mon May 29, 2023 12:52 pm
watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
It just begs the question of what your investment horizon is, and why you bought the 2024-2033 bonds to begin with. Were you trying to provide for expenses between 2024-2033, or were you always planning to roll over this ladder?
Prudence
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Prudence »

oxothuk wrote: Mon May 29, 2023 3:14 pm
Prudence wrote: Mon May 29, 2023 12:52 pm
watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
It just begs the question of what your investment horizon is, and why you bought the 2024-2033 bonds to begin with. Were you trying to provide for expenses between 2024-2033, or were you always planning to roll over this ladder?
The investment horizon is about 20 to 25 years. I wanted to fill up my tIRA with TIPS bonds (not funds) and decided that I would decide later what to do with the proceeds when each rung matured. I don't really need the principal to fund expenses. I suppose I could build a 20-year TIPS ladder, but this idea of converting my TIPS to a TIPS bond maturing in 2023 or 2024 seemed interesting.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by exodusing »

Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Kevin M »

exodusing wrote: Tue May 30, 2023 11:34 am Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
Could be. This is what's referred to as a bond portfolio immunization technique, and this has been around for years. It's discussed at length in one of my investment textbooks, published in 1994. The paper mentioned in the linked thread is from 1990.

The application to liability driven investment strategies (LDI) may be more recent. Bobcat2 has posted a bunch about that.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by exodusing »

Kevin M wrote: Tue May 30, 2023 11:59 am
exodusing wrote: Tue May 30, 2023 11:34 am Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
Could be. This is what's referred to as a bond portfolio immunization technique, and this has been around for years. It's discussed at length in one of my investment textbooks, published in 1994. The paper mentioned in the linked thread is from 1990.

The application to liability driven investment strategies (LDI) may be more recent. Bobcat2 has posted a bunch about that.
According to In Pursuit of the Perfect Portfolio "Leibowitz has sometimes been called the founder of asset-liability management, or liability-driven investing." Liebowitz is an author of the linked paper.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Kevin M »

exodusing wrote: Tue May 30, 2023 12:21 pm
Kevin M wrote: Tue May 30, 2023 11:59 am
exodusing wrote: Tue May 30, 2023 11:34 am Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
Could be. This is what's referred to as a bond portfolio immunization technique, and this has been around for years. It's discussed at length in one of my investment textbooks, published in 1994. The paper mentioned in the linked thread is from 1990.

The application to liability driven investment strategies (LDI) may be more recent. Bobcat2 has posted a bunch about that.
According to In Pursuit of the Perfect Portfolio "Leibowitz has sometimes been called the founder of asset-liability management, or liability-driven investing." Liebowitz is an author of the linked paper.
Interesting. I've seen mostly references to Merton from bobcat2's posts, IIRC.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by McQ »

exodusing wrote: Tue May 30, 2023 12:21 pm
Kevin M wrote: Tue May 30, 2023 11:59 am
exodusing wrote: Tue May 30, 2023 11:34 am Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
Could be. This is what's referred to as a bond portfolio immunization technique, and this has been around for years. It's discussed at length in one of my investment textbooks, published in 1994. The paper mentioned in the linked thread is from 1990.

The application to liability driven investment strategies (LDI) may be more recent. Bobcat2 has posted a bunch about that.
According to In Pursuit of the Perfect Portfolio "Leibowitz has sometimes been called the founder of asset-liability management, or liability-driven investing." Liebowitz is an author of the linked paper.
Leibowitz apprenticed with Sydney Homer ("History of Interest Rates") at Salomon Bros in the early 1970s. The third edition of their ground-breaking work, Inside the Yield Book, has some chapters on duration matching (and very interesting reminiscences of Sydney Homer and bond trading before computers got applied).

PS: While I'm thinking of it, Sydney Homer was the source of the Roman soldier story that crops up on the Internet now and then: "If a Roman soldier invested a penny at interest rate X, how much would he have today?" Leibowitz did the calculations for Homer, as described in Inside the Yield Book.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by exodusing »

Kevin M wrote: Tue May 30, 2023 1:31 pm
exodusing wrote: Tue May 30, 2023 12:21 pm
Kevin M wrote: Tue May 30, 2023 11:59 am
exodusing wrote: Tue May 30, 2023 11:34 am Many posts here about matching duration to horizon. AFAIK, a prime basis for that approach was the paper mentioned in viewtopic.php?t=405535
Could be. This is what's referred to as a bond portfolio immunization technique, and this has been around for years. It's discussed at length in one of my investment textbooks, published in 1994. The paper mentioned in the linked thread is from 1990.

The application to liability driven investment strategies (LDI) may be more recent. Bobcat2 has posted a bunch about that.
According to In Pursuit of the Perfect Portfolio "Leibowitz has sometimes been called the founder of asset-liability management, or liability-driven investing." Liebowitz is an author of the linked paper.
Interesting. I've seen mostly references to Merton from bobcat2's posts, IIRC.
Merton was writing about lifecycle investing, including retirement planning, back in the 1970s. He advocated for setting up an income floor. Zvi Bodie was an early collaborator and is perhaps best known for suggesting using TIPS for a safe floor. Leibowitz's work on LDI is more general rather than focused on the individual investor.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by exodusing »

McQ wrote: Tue May 30, 2023 2:05 pmLeibowitz apprenticed with Sydney Homer ("History of Interest Rates") at Salomon Bros in the early 1970s. The third edition of their ground-breaking work, Inside the Yield Book, has some chapters on duration matching (and very interesting reminiscences of Sydney Homer and bond trading before computers got applied).

PS: While I'm thinking of it, Sydney Homer was the source of the Roman soldier story that crops up on the Internet now and then: "If a Roman soldier invested a penny at interest rate X, how much would he have today?" Leibowitz did the calculations for Homer, as described in Inside the Yield Book.
Back in the days when bond yields were published in books.

EDIT: Here's Merton's version of the Roman soldier story https://www.youtube.com/watch?v=rmYGZvmYknk&t=2400s He uses it to show that stocks do not become riskless over the long run.
Last edited by exodusing on Tue May 30, 2023 2:49 pm, edited 1 time in total.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by retiringwhen »

exodusing wrote: Tue May 30, 2023 2:20 pm
McQ wrote: Tue May 30, 2023 2:05 pmLeibowitz apprenticed with Sydney Homer ("History of Interest Rates") at Salomon Bros in the early 1970s. The third edition of their ground-breaking work, Inside the Yield Book, has some chapters on duration matching (and very interesting reminiscences of Sydney Homer and bond trading before computers got applied).

PS: While I'm thinking of it, Sydney Homer was the source of the Roman soldier story that crops up on the Internet now and then: "If a Roman soldier invested a penny at interest rate X, how much would he have today?" Leibowitz did the calculations for Homer, as described in Inside the Yield Book.
Back in the days when bond yields were published in books.

Versions of the Roman soldier story are often used to show that line of thought is ridiculous.
Benjamin Franklin thought that and put his money where his mouth was and funded over two centuries gifts of public assets in the cities of Philadelphia and Boston including gifts to the Philly Zoo and Franklin Institute. He left $2,000 to each city and said money could not be touched for 100 years (loans were made during the 2nd century) and could not be disbursed for 200. In the late 1990s, the Boston fund was supposedly worth over $4.5M.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

retiringwhen wrote: Tue May 30, 2023 2:36 pm
exodusing wrote: Tue May 30, 2023 2:20 pm
McQ wrote: Tue May 30, 2023 2:05 pmLeibowitz apprenticed with Sydney Homer ("History of Interest Rates") at Salomon Bros in the early 1970s. The third edition of their ground-breaking work, Inside the Yield Book, has some chapters on duration matching (and very interesting reminiscences of Sydney Homer and bond trading before computers got applied).

PS: While I'm thinking of it, Sydney Homer was the source of the Roman soldier story that crops up on the Internet now and then: "If a Roman soldier invested a penny at interest rate X, how much would he have today?" Leibowitz did the calculations for Homer, as described in Inside the Yield Book.
Back in the days when bond yields were published in books.

Versions of the Roman soldier story are often used to show that line of thought is ridiculous.
Benjamin Franklin thought that and put his money where his mouth was and funded over two centuries gifts of public assets in the cities of Philadelphia and Boston including gifts to the Philly Zoo and Franklin Institute. He left $2,000 to each city and said money could not be touched for 100 years (loans were made during the 2nd century) and could not be disbursed for 200. In the late 1990s, the Boston fund was supposedly worth over $4.5M.
The problem with the Roman soldier story is that if a Roman soldier invested his denarius in the All-Empire Index Fund at the peak of the Roman Empire around the time of the death of Marcus Aurelius and the end of the Pax Romani (180 AD), it may well have taken until the Industrial Revolution in the 1800s before he broke even.
Ben Franklin would have invested in the Boston Fund at the right time, right before the Industrial Revolution and the biggest two century bull market in the history of civilization (even more prosperous than the two century long Pax Romani). How long that bull market will continue is anybody's guess.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

oxothuk wrote: Mon May 29, 2023 3:07 pm
TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by TheTimeLord »

protagonist wrote: Tue May 30, 2023 3:51 pm
oxothuk wrote: Mon May 29, 2023 3:07 pm
TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

TheTimeLord wrote: Tue May 30, 2023 4:31 pm
protagonist wrote: Tue May 30, 2023 3:51 pm
oxothuk wrote: Mon May 29, 2023 3:07 pm
TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
Thanks. I just buy my TIPS on the secondary market via Fidelity whenever I have the free cash to spend. That way I can get whatever maturity I want. My experience is that you don't lose much, if anything, by doing that over buying at auction. The limiting factor for me is free liquid cash. I have scattered CDs maturing at various times between now and the end of 2023 (mostly now and in July). By then my ladder should be complete.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by TheTimeLord »

protagonist wrote: Tue May 30, 2023 5:40 pm
TheTimeLord wrote: Tue May 30, 2023 4:31 pm
protagonist wrote: Tue May 30, 2023 3:51 pm
oxothuk wrote: Mon May 29, 2023 3:07 pm
TheTimeLord wrote: Mon May 29, 2023 8:46 am It seems like most of the discussions involve ladders with 1 year rungs. Depending on availability I have years with either 3 month, 6 month or 1 year rungs to get maturity as close as possible to the monthly liability. Probably doesn't make much of a difference but not sure it works well with the tools that are currently available.
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
Thanks. I just buy my TIPS on the secondary market via Fidelity whenever I have the free cash to spend. That way I can get whatever maturity I want. My experience is that you don't lose much, if anything, by doing that over buying at auction. The limiting factor for me is free liquid cash. I have scattered CDs maturing at various times between now and the end of 2023 (mostly now and in July). By then my ladder should be complete.

I think you are missing my point, the new issue auction determines the month the TIPS matures and if that article is correct only 5 year TIPS mature in April so that would be very constraining on the length of your ladder.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

TheTimeLord wrote: Tue May 30, 2023 6:03 pm
protagonist wrote: Tue May 30, 2023 5:40 pm
TheTimeLord wrote: Tue May 30, 2023 4:31 pm
protagonist wrote: Tue May 30, 2023 3:51 pm
oxothuk wrote: Mon May 29, 2023 3:07 pm
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
Thanks. I just buy my TIPS on the secondary market via Fidelity whenever I have the free cash to spend. That way I can get whatever maturity I want. My experience is that you don't lose much, if anything, by doing that over buying at auction. The limiting factor for me is free liquid cash. I have scattered CDs maturing at various times between now and the end of 2023 (mostly now and in July). By then my ladder should be complete.

I think you are missing my point, the new issue auction determines the month the TIPS matures and if that article is correct only 5 year TIPS mature in April so that would be very constraining on the length of your ladder.
Oh, correct. Thanks. I know that. I shoot for April maturities, but when they are not available, or if another TIPS the same year is more desirable, I am flexible. So it is not a problem for me.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by AlohaBill »

I choose number 1. And I am also taking my family to Oahu, first class for the first time (against my wife’s wishes) in December. :beer
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

AlohaBill wrote: Wed May 31, 2023 9:57 am I choose number 1. And I am also taking my family to Oahu, first class for the first time (against my wife’s wishes) in December. :beer
What is number 1?
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by secondopinion »

watchnerd wrote: Sun May 28, 2023 2:59 pm
oxothuk wrote: Sun May 28, 2023 2:57 pm
watchnerd wrote: Sun May 28, 2023 2:05 pm But LTPZ at .20....

With TIPS in the 1.4-1.7% real yield range, that .20 ER is expensive.
Why not just buy some individual 2045 TIPS instead? You could blend them together with short and intermediate TIPS funds to get whatever portfolio duration you are after. One time cost of bid-ask spread rather than 20bp per year.
That's what I do.

I don't find the arguments in favor of funds to be compelling.

Setting up a TIPS ladder is pretty easy.

But I think some of the friction to buying individual TIPS is due to:

1. Inexperience in buying individual bonds
2. Inability to buy individual bonds in some tax sheltered accounts for some people
3. Desire to regularly DCA into TIPs funds (like stocks or TBM), instead of making big stair-step purchases of ladder rungs
4. Concern that buying more TIPS when real yields are favorable is "market timing", and thus a break from BH orthodoxy some find uncomfortable
1. But experience is gained, right?
2. Who cares if some cannot invest in individual bonds, many others can.
3. I do not have an easy answer for the micro-deposits that people expect; once I have a few thousand, I just invest in what I need.
4. If it is needed for your objectives, that trumps others' opinions.

I would not buy LTPZ ever; it is too expensive in the long-run for what it is doing.
Last edited by secondopinion on Wed May 31, 2023 10:43 am, edited 1 time in total.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by N.Y.Cab »

#1 is stay the course and engage in no market timing.

That seems like the best choice. I bought some short term at 2% fixed but now seeing losses as the current fixed is 3% due to inverted yield curve.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by exodusing »

Regarding market timing. When I set up my TIPS ladder, the funds in my IRA were sufficient to fully fund a ladder that generated the income I wanted. When rates were lower, I could not do that (at least not at the times I looked). If that's market timing, so be it.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

N.Y.Cab wrote: Wed May 31, 2023 10:43 am #1 is stay the course and engage in no market timing.
Not all market timing is counterproductive.
My purpose in buying TIPS (or really any fixed income investment) is income preservation. Growth in real terms is icing on the cake- nice when you can get it.
I market time to the extent that, if yields are negative (real), I hardly ever invest in TIPS. That would be like placing a sucker bet where you are guaranteed to lose. I would rather take my chances with CDs or whatever....at least I might come out ahead.
There is the occasional exception. I actually started buying short term TIPS at slightly negative yields when inflation was sky-high last year and TIPS seemed like the best option for the smallest loss, compared with other fixed income investments. Thus, I invest in them when they suit my purpose. Probably many others did the same last summer.

If I buy TIPS at 0.1% and yields increase to 3%, they still suit my purpose because I hold to maturity. I still get to eat the cake...just miss out on a lot of the icing.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Kevin M »

TheTimeLord wrote: Tue May 30, 2023 6:03 pm
protagonist wrote: Tue May 30, 2023 5:40 pm
TheTimeLord wrote: Tue May 30, 2023 4:31 pm
protagonist wrote: Tue May 30, 2023 3:51 pm
oxothuk wrote: Mon May 29, 2023 3:07 pm
I use yearly rungs with maturity in first half of each year. That makes the rungs larger, so they were easier to purchase on the secondary market. Also makes for less work tracking my ladder. I figure I can park the proceeds of maturing bonds in VTAPX or T-bills to fund expenses in the second half of each year.
I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
Thanks. I just buy my TIPS on the secondary market via Fidelity whenever I have the free cash to spend. That way I can get whatever maturity I want. My experience is that you don't lose much, if anything, by doing that over buying at auction. The limiting factor for me is free liquid cash. I have scattered CDs maturing at various times between now and the end of 2023 (mostly now and in July). By then my ladder should be complete.

I think you are missing my point, the new issue auction determines the month the TIPS matures and if that article is correct only 5 year TIPS mature in April so that would be very constraining on the length of your ladder.
We can just look at existing TIPS to see maturity dates. The longest April maturity is the 4/15/32, which is 8.88 years. Before that there is the 4/15/29 which is 5.88 years.

All TIPS maturing in 1940 and beyond mature in Feb, but no earlier maturities mature in Feb.

So, I simply wouldn't restrain myself to any particular maturity month. Personally I buy all maturity months as far out as I'm going, which isn't very frar yet, since I want to be able to roll them and hopefully luck into some higher yields.
If I make a calculation error, #Cruncher probably will let me know.
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watchnerd
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by watchnerd »

Prudence wrote: Mon May 29, 2023 12:52 pm
watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
*head scratching*

If it's just for residual expenses, why are you worried about reinvestment risk? Won't you be consuming the ladder money on said expenses?
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by HeavyChevy »

5. Continue to ignore
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McQ
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by McQ »

Bought another tranche of LTPZ today, $59.14, not that much lower than my last purchase, but long yields back above 1.70% again, I'm happy to leg in. I steer between the Scylla of "if I had only waited I coulda got 2.25%" and the Charybdis of "yields have dropped below 1.30%, the Fed is pausing/cutting, and I filled less than half my allotment, curses."

If you are short-term TIPS minded, and haven't checked yields recently, take a look. You can now get +2.0% real out through three years. Nominal short term bond yields broke out of (above) their trading range established after the March regional bank crisis, and TIPS followed along.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by slicendice »

McQ wrote: Fri Jun 02, 2023 5:46 pm I steer between the Scylla of "if I had only waited I coulda got 2.25%" and the Charybdis of "yields have dropped below 1.30%, the Fed is pausing/cutting, and I filled less than half my allotment, curses."
Truth. Although maybe due to my recency bias of the pre-2022 TIPS market, the Charybdis speaks louder to me.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Prudence »

watchnerd wrote: Fri Jun 02, 2023 12:32 pm
Prudence wrote: Mon May 29, 2023 12:52 pm
watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
*head scratching*

If it's just for residual expenses, why are you worried about reinvestment risk? Won't you be consuming the ladder money on said expenses?
My residual expenses are tough to estimate and are running significantly less than the rungs in my existing 2024 to 2033 TIPS ladder in my IRA. So, as each rung matures, I will have to reinvest the funds. Converting it all to a long-term TIPS (say 20 year) and using the income to fund some of the annual residual expenses would give me the inflation protection without the reinvestment risk, assuming I would hold the TIPS to maturity.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by HicksSt »

Watching this like a hawk. Might get to the 2% level soon.

CAPE is over 30. This seems like a no-brainer in tax-advantaged for anyone worried about SORR.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

Prudence wrote: Sat Jun 03, 2023 8:48 am
watchnerd wrote: Fri Jun 02, 2023 12:32 pm
Prudence wrote: Mon May 29, 2023 12:52 pm
watchnerd wrote: Sun May 28, 2023 4:51 pm
Prudence wrote: Sun May 28, 2023 4:04 pm Several posters are considering converting their TIPS to the 20-year TIPS to lock in approximately 1.7% real for the long term. I am interested in this approach. Currently my tIRA is full with TIPS maturing between 2024 and 2033. Suppose I convert all of these to TIPS maturing in 2044, planning that they will produce >1.7% income annually. Also, I can purchase nominal Treasuries (or an index fund) in my taxable account that, hopefully, will also produce 1.7% real over the 20 years. The combined income from the TIPS and the nominals may cover our residual expenses over this time period. Does this make any sense? (Assumes I would hold the 20-year TIPS to maturity).
I don't get how a single 2044 maturity replaces a ladder running from 2024 to 2033.

Especially since 1.7% is the YTM, not the coupon.
Here is an example: 912810RF7 matures on 2/15/2044, coupon = 1.375%, YTM = 1.715. I would use the annual income (adjusted principal times the coupon rate) to fund residual expenses and hold the TIPS to the maturity date. By selling my 2024 to 2033 "ladder", I eliminate the future reinvestment risk. Probably stupid so feel free to shoot down.
*head scratching*

If it's just for residual expenses, why are you worried about reinvestment risk? Won't you be consuming the ladder money on said expenses?
My residual expenses are tough to estimate and are running significantly less than the rungs in my existing 2024 to 2033 TIPS ladder in my IRA. So, as each rung matures, I will have to reinvest the funds. Converting it all to a long-term TIPS (say 20 year) and using the income to fund some of the annual residual expenses would give me the inflation protection without the reinvestment risk, assuming I would hold the TIPS to maturity.
That's an interesting strategy, Prudence.

So far I have a TIPS ladder , like you, from 2024-2033, with , I believe, easily more than enough annually to cover any expenses , combined with SS and annual capital gains distributions from FFNOX. I would probably do fine even without the TIPS, and if things really hit the fan I could sell FFNOX anyway. I would be 81 y o in 2033. My plan, barring emergencies, was to reinvest most, if not all, of the proceeds from each rung as it matured, in TIPS 10 years out (e.g.: 2034 in 2024, 2035 in 2025, etc.)

Using your strategy, and investing a larger sum in , say, 2044 TIPS now (1.375% coupon), that would generate more guaranteed income every year I was alive to age 92, in case reinvestment opportunities were not good, and it would simplify life (a little bit). If I die before 2044 my heirs would get a windfall of inflation protected funds at maturity.

The amount of annual available cash would not be nearly as large, but if yields did come down significantly in the future, the value of the TIPS would rise and I could sell at a profit.

hmmm.... I'm thinking about this- at least investing part of my planned 10 year ladder in, say, 2044s (I'm still building the ladder as CDs mature this year).

The down side is the fairly high probability that I will not be alive at 92 to reap the benefits of the 2044 issue when it matures, or in any case, may not be in a position to enjoy them. Having the ability to tap into matured principal every year without risking real loss is comforting, even if I don't do it.

I would have to invest a pretty large sum in 2044s to generate enough income to make a difference. I'm leaning towards just maintaining my current strategy (10 year rolling ladder), and letting the chips fall as they may.

Do others agree with me or with Prudence, and what is your rationale?
Last edited by protagonist on Thu Jul 06, 2023 1:10 pm, edited 1 time in total.
protagonist
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

Kevin M wrote: Wed May 31, 2023 2:22 pm
TheTimeLord wrote: Tue May 30, 2023 6:03 pm
protagonist wrote: Tue May 30, 2023 5:40 pm
TheTimeLord wrote: Tue May 30, 2023 4:31 pm
protagonist wrote: Tue May 30, 2023 3:51 pm

I use annual rungs as well, usually shooting for April maturities (I figure I might be able to use the extra cash around tax time). My ladder will include rungs from 2024-2033. When my 2024s mature I will invest in 2034s, etc. Since I am over 70 , maturities in the 2040s don't make a lot of sense to me now.

I have pretty much filled in my 2024-2027 rungs. I have funds coming in from maturing CDs, one which matured today and others that mature in July. Given current high yields I am thinking I will fund the later rungs (2031-33) when my funds become available from the CD that just matured , to lock in high yields longer, and leave 2028-2030 maturities until July (when yields might be lower after the debt ceiling crisis passes).

Does that make sense?
I would suggest you take a look at the Auction Schedule for TIPS to see in which months what durations are offered. It is not nearly as robust as nominals.

https://tipswatch.com/upcoming-tips-auctions/
Thanks. I just buy my TIPS on the secondary market via Fidelity whenever I have the free cash to spend. That way I can get whatever maturity I want. My experience is that you don't lose much, if anything, by doing that over buying at auction. The limiting factor for me is free liquid cash. I have scattered CDs maturing at various times between now and the end of 2023 (mostly now and in July). By then my ladder should be complete.

I think you are missing my point, the new issue auction determines the month the TIPS matures and if that article is correct only 5 year TIPS mature in April so that would be very constraining on the length of your ladder.
We can just look at existing TIPS to see maturity dates. The longest April maturity is the 4/15/32, which is 8.88 years. Before that there is the 4/15/29 which is 5.88 years.

All TIPS maturing in 1940 and beyond mature in Feb, but no earlier maturities mature in Feb.

So, I simply wouldn't restrain myself to any particular maturity month. Personally I buy all maturity months as far out as I'm going, which isn't very frar yet, since I want to be able to roll them and hopefully luck into some higher yields.
I never restricted myself to a particular month. My only hard criterion is that I have rungs that mature at least once per year, with approximately the same amount invested maturing each year. Within that year I pick the TIPS I find most desirable, which is often the April one, or I split maturities within the year if the two best seem pretty equal.
I give small priority to April maturities, since they usually have the best non-SA yields,....the tax time advantage is just lagniappe (an old Cajun expression...think "icing on the cake").
At the time I posted the above, I was investing taxable funds, and the April maturities also tended to have the lowest coupon, with the advantage of deferring more taxes. Now I am investing in my IRA, so that is no longer an issue.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by protagonist »

Prudence wrote: Sat Jun 03, 2023 8:48 am
Converting it all to a long-term TIPS (say 20 year) and using the income to fund some of the annual residual expenses would give me the inflation protection without the reinvestment risk, assuming I would hold the TIPS to maturity.

Another point: I think people put too much weight on "reinvestment risk", the flip side of which is "reinvestment opportunity". For the most part I prefer to ignore it, since I have no crystal ball.

I'm really happy that I invested in only TIPS maturing 2023-2026 a year or so ago, and that I only had a limited amount of free cash to invest, when YTMs were hovering around the down side of zero to -1% . Recall how tempting TIPS were then- inflation was hovering around 8-9% , the best CDs were yielding less than 2% nominal, bonds were nosediving, and nobody knew if inflation would get better or worse.

If I invested heavily in 20 year TIPS then (or worse, even earlier), it would have been due to fear of "reinvestment risk", and I would be experiencing a lot of FOMO these days.
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Re: Now that long TIPS again yield more than 1.70% I will…

Post by Kevin M »

The 2040s are trading in the 1.8+% range today--at least last I checked. That's higher than I recall seeing them lately.
If I make a calculation error, #Cruncher probably will let me know.
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