TIPS invest now?
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TIPS invest now?
Should I invest in TIPS right now? I research on both Vanguard and Fidelity TIPS fund i.e VIPSX and FINPX for 10 years return is about 1.5%.
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- Posts: 4215
- Joined: Sun May 05, 2019 11:23 am
Re: TIPS invest now?
Hello, and welcome to the forum! Sorry to see your first post slip onto the second page with no responses. You should have asked about international vs domestic stocks, we would have been all over that like a leg of lamb thrown into a piranha tank. So, back to your question...a bit of clarification is needed as to what you're asking.
Should you invest in TIPS now? Like, as opposed to waiting for the yield to get better? That's called timing the bond market. It's not our speciality around here, and is frowned on by many.
Should you invest in TIPS now? As in, would it be a good thing to add to your portfolio? You may want to ask this question in the Personal Investments section of this forum, and you can read an introductory post about that: link
To give you some idea about how TIPS might fit into a portfolio, I'll share this post with you:
Should you invest in TIPS now? Like, as opposed to waiting for the yield to get better? That's called timing the bond market. It's not our speciality around here, and is frowned on by many.
Should you invest in TIPS now? As in, would it be a good thing to add to your portfolio? You may want to ask this question in the Personal Investments section of this forum, and you can read an introductory post about that: link
To give you some idea about how TIPS might fit into a portfolio, I'll share this post with you:
link to original postSpeaking very generally, it usually makes sense to hold some TIPS when your portfolio is is less than 70% stocks.
If your portfolio is less than 50% stocks it could make sense to have most of your bonds as TIPS.
A very rough rule of thumb, in table form:
LTT = Long-term TreasuriesCode: 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
Re: TIPS invest now?
If you're new to TIPS, read the Wiki's Treasury Inflation Protected Security for some background, including the section, Through a mutual Fund or ETF.irisngbonus wrote: ↑Thu Aug 18, 2022 11:22 pmShould I invest in TIPS right now? I research on both Vanguard and Fidelity TIPS fund i.e VIPSX and FINPX for 10 years return is about 1.5%.
Now a general comment:
Ignore past performance in selecting bond funds. I suggest making your decision top-down as follows:
- Decide what percent of your portfolio should be in bonds of any type. This usually depends on age. Young investors should favor stocks. Old investors should favor bonds.
- Decide what maturity of bonds to hold. This usually depends on when you might need to liquidate. For example, if you're saving to buy a house in five years, you'd want bonds with a short average maturity. Otherwise I suggest holding bonds with an average maturity of 5 to 10 years, even if you don't plan on liquidating them for a long time. However, some smart forum members recommend holding long-term bonds as a counter-balance in a stock heavy portfolio.
- Decide what percent of your bonds should be TIPS as opposed to other types like non-inflation-indexed Treasury, corporate, or municipal bonds. Opinions vary on this among forum members. My own is that the majority, if not all, should be in TIPS. Some members suggest only buying TIPS if you're particularly vulnerable to inflation. E.g., retired with small social security and/or a non-inflation indexed pension. And the same smart members who suggest long-term bonds in a stock heavy portfolio often recommend non-inflation-indexed bonds again as a better counter-balance in a stock-heavy portfolio. (This view is reflected in the chart from Robot Monster's post above.)
- VIPSX is the Investor class of the Vanguard Inflation-Protected Securities Fund. It has an expense ratio of 0.20%. VAIPX is the Admiral class with only a 0.10% expense ratio. But it requires a $50,000 minimum investment.
- FINPX no longer exists. However, Fidelity does offer a TIPS index fund, FIPDX, which has a low 0.05% expense ratio.
- Both VIPSX/VAIPX and FIPDX are what I call "broad based" funds because they pick holdings from among TIPS that mature from 1 year up to the longest maturity of 30 years. There are other funds that choose from shorter maturities. But for long-term investing a broad based fund is probably best.
- FIPDX is an index fund meaning that its holdings are weighted to match the weights of all outstanding TIPS. VIPSX/VAIPX is not an index fund; it is actively managed, meaning it doesn't have to match the weights of the overall TIPS market. However, in practice its holdings don't vary much from what they would be if it were an index fund.
- VIPSX/VAIPX and FIPDX are standard mutual funds. They are best held if you have an account at the firm that issues them. E.g., buy VIPSX or VAIPX only in a Vanguard account. Buy FIPDX only in a Fidelity account. Otherwise I suggest buying an exchange traded mutual TIPS fund (an ETF). E.g., I don't believe E-Trade has its own TIPS mutual fund. So if you wanted to buy a broad based TIPS fund there, I suggest SCHP, Schwab's TIPS ETF with a small 0.05% expense ratio.
- FIPDX seems to only pay one dividend per year in December. This will likely be quite large this year because of current high inflation which is reflected in TIPS valuations and which funds are required to distribute. If you owned FIPDX in a tax-deferred account this is not be an issue. But buying FIPDX in a taxable account now would incur a larger tax bill this year than would a purchase of a similar TIPS fund that pays dividends monthly or quarterly.
Re: TIPS invest now?
To paraphrase an old Zen koan, the best time to invest in TIPS is 20 years ago. The second best time is now.
Re: TIPS invest now?
Not the OP, just thinking you for such a detailed reply. I enjoy reading your analyses.#Cruncher wrote: ↑Sun Aug 21, 2022 2:45 pmIf you're new to TIPS, read the Wiki's Treasury Inflation Protected Security for some background, including the section, Through a mutual Fund or ETF.irisngbonus wrote: ↑Thu Aug 18, 2022 11:22 pmShould I invest in TIPS right now? I research on both Vanguard and Fidelity TIPS fund i.e VIPSX and FINPX for 10 years return is about 1.5%.
Now a general comment:
Ignore past performance in selecting bond funds. I suggest making your decision top-down as follows:Now for some detailed comments:
- Decide what percent of your portfolio should be in bonds of any type. This usually depends on age. Young investors should favor stocks. Old investors should favor bonds.
- Decide what maturity of bonds to hold. This usually depends on when you might need to liquidate. For example, if you're saving to buy a house in five years, you'd want bonds with a short average maturity. Otherwise I suggest holding bonds with an average maturity of 5 to 10 years, even if you don't plan on liquidating them for a long time. However, some smart forum members recommend holding long-term bonds as a counter-balance in a stock heavy portfolio.
- Decide what percent of your bonds should be TIPS as opposed to other types like non-inflation-indexed Treasury, corporate, or municipal bonds. Opinions vary on this among forum members. My own is that the majority, if not all, should be in TIPS. Some members suggest only buying TIPS if you're particularly vulnerable to inflation. E.g., retired with small social security and/or a non-inflation indexed pension. And the same smart members who suggest long-term bonds in a stock heavy portfolio often recommend non-inflation-indexed bonds again as a better counter-balance in a stock-heavy portfolio. (This view is reflected in the chart from Robot Monster's post above.)
- VIPSX is the Investor class of the Vanguard Inflation-Protected Securities Fund. It has an expense ratio of 0.20%. VAIPX is the Admiral class with only a 0.10% expense ratio. But it requires a $50,000 minimum investment.
- FINPX no longer exists. However, Fidelity does offer a TIPS index fund, FIPDX, which has a low 0.05% expense ratio.
- Both VIPSX/VAIPX and FIPDX are what I call "broad based" funds because they pick holdings from among TIPS that mature from 1 year up to the longest maturity of 30 years. There are other funds that choose from shorter maturities. But for long-term investing a broad based fund is probably best.
- FIPDX is an index fund meaning that its holdings are weighted to match the weights of all outstanding TIPS. VIPSX/VAIPX is not an index fund; it is actively managed, meaning it doesn't have to match the weights of the overall TIPS market. However, in practice its holdings don't vary much from what they would be if it were an index fund.
- VIPSX/VAIPX and FIPDX are standard mutual funds. They are best held if you have an account at the firm that issues them. E.g., buy VIPSX or VAIPX only in a Vanguard account. Buy FIPDX only in a Fidelity account. Otherwise I suggest buying an exchange traded mutual TIPS fund (an ETF). E.g., I don't believe E-Trade has its own TIPS mutual fund. So if you wanted to buy a broad based TIPS fund there, I suggest SCHP, Schwab's TIPS ETF with a small 0.05% expense ratio.
- FIPDX seems to only pay one dividend per year in December. This will likely be quite large this year because of current high inflation which is reflected in TIPS valuations and which funds are required to distribute. If you owned FIPDX in a tax-deferred account this is not be an issue. But buying FIPDX in a taxable account now would incur a larger tax bill this year than would a purchase of a similar TIPS fund that pays dividends monthly or quarterly.
Re: TIPS invest now?
Maybe you should be asking, nominal treasuries invest now? We don't really know which investment choice will perform better for your goals. Your question seems to imply we can time the market and we should ignore our individual investment objectives and policies.