I think the real risk would be holding cash due to expected deflation - but having no hedge against the opposite longer term eventuality. I'm using TIP to balance other cash (FDIC insured - ie. low or no return) holdings.
Its also incredibly frustrating to see the banks dole out our money for executive bonuses while they pay me nothing for my deposits.
I would just say average into TIP like anything else - over time - and use it as just a part of your hedging strategy while Wall St. and the government play "Liar's Poker" with our assets.
Sorry I meant inflation to skyrocket at some point, rather than gradually re-emerge. I agree with deflation in the short term, although I'm not convinced it isn't being somewhat exaggerated.
Lastly, can we expect this fund to continue to go up if the long term treasury market crashes? This may have been addressed before. Is it possible a lot of that money could go into TIPS instead of stocks or other currencies? IN other words, would a crash in the long term treasury market by definition mean investors long term inflation expectations are rising? Thanks.
Oh no, I am totally OK with the risk. I am very optimistic about this fund, in fact, I am just very curious as to what others identify as the risks and rewards. I agree with your position regarding the potential for inflation to skyrocket in the relatively near future.
Long term inflation > 50% probability.
Continued near term deflation > 50%
Contrary to most "gurus" I think when the economy turns it will be a "V". It will reverse fast like a rocket. Inflation will rocket as well.
If you want zero risk this fund may not be for you. A CD or a Money Market maybe more suitable for zero risk takers.
So subdued deflation short term and subdued inflation long term? So essentially only a very good short term economic scenario would be bad for TIPS?
Would you say this threat is greater than the threat of worsening short term deflation?
If the inflation senario looks subdued longer term at the same time that the recessionary/deflationary fears subside there could be a sudden HUGE flight to stocks.
Shorter term that would push down TIPS.
I have a hard time believing that there will be no inflation a year from now with the enormous stimulous the Fed has dumped into the system.
So what would you identify as the short term risks to TIPS?
In the long term, I believe inflation will re-emerge, or at least some kind of re-flation.
But if deflation is not a short-term risk, there must be something b/c nothing is totally risk-free.
Short term it's a flight to safety.
Longer term it's a protection against anticipated inflation. There are a lot of reasons to fear inflation longer term.
I beleive that when the fear of deflation and recession is passed that may draw money out of bond funds into stocks.
If that happens then inflationary fears may take over. Treasuries would take a hit but TIPS may be OK.
TIPS can do well under either senario, flight to safety or fear of inflation.
I cannot predict the future with 100% accuracy but for me, TIPS are a good bet short term and long term.
So this is basically a disconnect, right? Long term yields dropping while inflation expectations rise?
If so, how long can this disconnect last?
And what has or will give greater momentum to TIPS-- rising inflationary expectations or perhaps irrational, bubble buying of treasuries (or non-bubble depending on your perspective I guess).
In other words, if I believe or fear an eventual unwind or crash of these long term rates, what effect will that have on TIPS? Can TIPS rise in that kind of environment?