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iShares TIPS Bond Message Board

  • gsk10002000 gsk10002000 Feb 1, 2011 5:12 PM Flag

    The Problem with TIP is, no History during inflatonary period

    The problem with TIP is there is no long term track record of this vehicle.

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    • "The problem with TIP is there is no long term track record of this vehicle."

      Why would we care?

      1. You buy a 10-Year TIPS bond that pays 1.08% over inflation (the current rate).
      2. You hold until maturity.
      3. If inflation averages 3% then you will earn 4.08%.

      Historical performance would have no impact whatsoever on that math.

      If I am comfortable owning that bond then I should feel comfortable owning a bond fund that holds a collection of similar bonds (TIP).

      I actually prefer to buy TIPS directly and hold them until maturity though. That way I don't have to rely on the market to tell me what they are worth. I already know what they are worth to me.

      I bought a 29-Year TIPS bond for my IRA. It paid about 1.86% over inflation for the next 29 years. The market says I've lost money so far. That's fine. It won't change the fact that I will continue to earn 1.86% over inflation and that my IRA's purchasing power will grow by roughly 70% over the period though (thanks to 29 years of compound interest). All I am really missing is the opportunity to have done better. No big deal.

      In fact, I'm rooting for higher long-term TIPS yields (and lower prices). The 30-Year TIPS auction is coming up this month and I plan to participate in the auction.

 
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