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TIPS are US Government securities that currently pay two to three percent real return depending on the maturity selected. You can buy them from your broker, Treasury Direct account, Exchange Traded Funds (ETFs) and mutual funds. So, if inflation for a time period is three percent, your bonds earn five to six percent depending on the time period. These real returns are guaranteed by the US Treasury. I will not give all the details here and am not giving advice. Any retiree who needs bonds in their portfolio should look into TIPs. Talk to your financial advisor or wealth manager. This opportunity will not last forever. I welcome polite comments.
When TIPS had real yields to maturity of 0% or 1% they made no sense. Now that yields can be 2% or 3% they are much more interesting. I have been buying individual holdings with a 2% yield to maturity minimum in my deferred accounts and can hold to maturity. If they get cheaper can buy more. Im worried how high longer dated yields can go if Treasury has to attract investors so focusing on shorter maturity. Very easy to buy at Schwab.
I have invested my tax deferred IRA investments in TIPS. I have aligned individual bond maturities with my RMDs in the coming 15 years. The balance is in VTIP…a Vanguard 1-5 year ETF made up of TIPS with minimal fees. I also will invest the interest on the bonds in VTIP. This was all done painlessly through my Fidelity IRA account. As the years 2037-2039 do not currently have TIPS maturities, those years are covered by VTIP, for now. David Enna is the best at learning more about TIPS or I-Bonds…TIPSWATCH.COM.
Thanks for the post. I’ve been considering gradually moving a portion of our bond holdings (including a TIPS fund) to a TIPS ladder. The big draw of individual TIPS is matching individual bond maturities to future liabilities, which in our case we don’t really know. However, we do know we’ll have RMDs and can project what those will be, so maybe it makes sense to consider those our liabilities and ladder TIPS in those amounts. Maybe…
Btw, if one is taking from other bonds which are also down in price to buy TIPS, are they as good a deal? I don’t know.
I was again a purchaser of 10 years TIPS at the most recent 6 month auction earlier this month where the real yield at auction was the highest since 2008. If someone is new to considering buying TIPS I have found David Enna’s comments his website TIPSwatch.com to be a great resource.
Like most things financial your individual circumstances will be key to the decision if owning TIPS and the quanity owned are right for you.
Thanks for your post Howard.
Excellent suggestion Howard. I have 10+ years worth of future withdrawals held in a mix of TIPs and regular Treasurys. I’m wondering whether it should be all in TIPs!