I'm not adding new cash to anything long term at this point. I understand that I'm taking reinvestment risk in doing so, which is exactly what you're talking about.protagonist wrote: ↑Sat Sep 24, 2022 6:01 pmIn a previous thread I mentioned that I don't consider reinvestment risk as a negative in my decision making since it can go either way, win or lose.
That is postulated on my belief that I can't second-guess what things will look like in the future.
However, if you believe that inflation will be back down to about 2% in a few years and will stay low (and I assume interest rates as well if you are correct), given that TIPS yields were much lower (mostly negative) when inflation was under control in recent years than now, wouldn't that make you think about spreading your TIPS out over longer maturities as well? This could be a relatively unique buying opportunity with YTMs around 1.5%. When your bonds mature in 2024 or 2025 you may not have the ability to reinvest at real YTMs as high as they are now.
Or am I missing something? I have a feeling I might be. Maybe I am generalizing about the effect of inflation rate on TIPS yields due to recency bias.
Is it because you think that investing in nominal Treasuries at longer maturities hovering now around 4% YTM will outperform TIPS in the long run (2% inflation plus current TIPS YTMs around 1.5% only equals 3.5% total)? So are you buying much longer term nominal Treasuries?
One thing I thought about doing is selling my long-term and intermediate-term bond funds in IRAs and buying TIPS of comparable duration. I may do that once I've used up my IRA cash. Like you, I have some CDs maturing over the next few years, and may deploy the cash from the IRA ones into TIPS.
One thing Powell said a couple meetings ago is that they wanted to see positive real yields across the yield curve. We have that now, at least based on TIPS yields. Hopefully that will remain one of their goals.
I must admit I'm tempted by 1.5% real, which you can get out to about 5-year maturity, and then not until about 20-year maturity--I'm not interested in going out that long in my circumstances.
So far, patiently buying more TIPS as yields have been increasing this year has been working:
Will it continue to work? We shall see.
Kevin