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iShares TIPS Bond Message Board

  • big.willa big.willa May 12, 2009 7:40 AM Flag

    new investor Qs

    looking for a place to park some cash; sick of worrying if my bank/FDIC is worth anything; don't chase yields, not a day trader, but can't figure out this ETF quite yet; i believe rates will rise (bad for bond fund) but this ETF seems to insulate from this with the inflation component? the beta seems high, particularly for govt bonds also; i've bought bonds & bills from treas direct but it screws up my taxes and i don't like dealing w/the fed govt directly and the rates have been so low; so many questions . . . any insight appreciated;

    go ahead and save any smartarse cracks, just looking for info and this is one source; i'm a serious investor but i have a feeling the party is over for this ETF;

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    • 1. Don't pay over NAV. TIP is currently trading at a 1% premium to NAV: http://us.ishares.com/product_info/fund/overview/TIP.htm?qt=TIP premium to NAV.

      2. Inflation is your friend but deflation can eat away your principle because the bonds don't pay out the inflation portion of the income until the bonds mature. One year of deflation could wipe out years of accumulated inflation payments.

    • thank u all, appreciate the thoughts; 2 of my banks where i have cash parked have changed hands twice in last 60 days; not exactly confidence-inspiring; they literally didn't get the signs changed and it was re-bought out again; and don't kid yourself that FDIC is safe, its not. even a mild run puts it out of business; does anyone here really think that can't happen in this environment?

      i liked the advice re commodities; i've always been a gold bug and i just can't help myself w/oil futures (short now); a young man could make his fortune just in those 2 if he paid enough attn; been long ag futures also; i like dba and dag; i'm heavy commodities for sure;

      what i meant by chasing this ETF is i can't find a single person who says its a bad idea to put money here; that makes me nervous, if everyone says its a good idea and if its what all the 'smart' people are doing, its usually past time to pull money out; that being said, i like this ETF better than cash and may start averaging in;

    • dude - do your own due diligence - treasurydirect.com has the full low-down on TIPS. Also read the iShares website.

      The etf is a solid place to hold money for the long-term. Pays like a 7% yield on a monthly schedule. Sit in your savings account and make your lousy 1/2%

      • 1 Reply to blackdog_monkey
      • Excellent advice - do your own research. Much sound analysis is free - just Google away and make up your own mind. If you find anything particularly interesting, please post it here.

        I would also investigate having a dash of commodities and a sprinkling of gold in your portfolio as additional inflation protection. The Geniuses recommend no more than 5% in either sector. The lazy man can have both in DBC, which because of tax consequences should only be held in an IRA or 401K. (DBC is a partnership, so there will be taxable gains which are not actually paid out but are retained in the partnership.)

    • You have a feeling the party is over for this ETF? Why do you have that feeling?

      What drives the price of TIP up is the real yield. When it goes down, TIPS go up in price, and vice versa.

      The real yield is the nominal yield- 10 year rate for example-- minus the rate of inflation. TIP can go up if interest rates decline or if CPI rises. The best case scenario is for both to happen simultaneously, as was the case for much of the past decade, and could be the case going forward if the Fed can flex its muscle and control the long end of the curve. The worst case scenario for TIPS would be rising interest rates and declining CPI or rising rates and stagnating CPI.

      To think TIP is going to underperform is to basically think either CPI is not going to jump any time soon and/or treasuries are going to crash bringing down TIP. But if you look at the performance of treasuries since Jan. when the bear market in treasuries began, and look at the performance of TIP, you can see TIP seems more than just insulated. After dividends, TIP is up about 4.25% for the year while TLT, the treasury etf, is down considerably for the year. Not sure the %, but it's alot, I expect this trend to continue, and for TIP to really perform well during any bear market rallies in treasuries, and to really, really perform well if CPI spikes due to rising oil and food anytime soon, AND/OR if the Fed accelerates its purchases of treasuries.

    • his_greeness_lord_balzy his_greeness_lord_balzy May 12, 2009 11:21 AM Flag

      >>bank/FDIC is worth anything<<

      Your "bank/FDIC" is worth EVERYTHING!!! That is the safest investment in the world right now because it's not subject to market fluctuations. Go for the shortest term CD you can find.

      The problem with this TIPS fund is that it is subject to market fluctuations. The market adjusts prices according to:

      1. Outlook on inflation.
      2. Market rates
      3. Economy outlook/flight to safety

      Long term this is an OK investment. Short term (under 6 months) you could lose money.

      JMHO

 
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