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iShares TIPS Bond Message Board

  • smartyibmx smartyibmx Feb 18, 2011 7:33 PM Flag

    Advice please

    I have a 401K with TIPS as an option. I am adverse to stocks as I am older and want to protect my money. The only other non stock fund in my 401K is a money market paying less than 2%. Is it ok to leave the money in TIPS long term (10+ years)?

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    • my son got a great job where he has a match up to 4% annual earnings, I went thru his 10 choices, all the equity funds were/are overbought/overvalued, the TIPS had best safe yield and I think .60 fee, lowest, so I told him to park it there 6 months or so when market correction allows more value to switch into equities. That was 2 weeks ago, looks right. Bought some CSQ this am, 14% discount, might check it, 6.5% yield.

    • If your 401K was invested in TIP then this is what you can probably expect.

      Since TIP pays out all inflationary gains and interest, the price of the fund tends to stay pretty much a constant over time.

      Since its inception, TIP's price has averaged $103.30. Since its current price is $106.46 it could be argued that TIP might be 3% overpriced relative to its historical average.

      The standard deviation of its historical price is $3.37. Statistics says we should have a 95% confidence that TIP's price should be within 2 standard deviations of its average price. Over the long-term, we can therefore probably say with 95% certainty that TIP's price should remain between $96.56 and $110.04, all things being equal.

      That said, all things might not be equal. Real yields were very high during the dotcom bubble. If we repeat it then I would expect TIPS investors to suffer. I don't think it will happen but you never know.

      In the meantime, TIP's investors should earn roughly 1% over inflation (minus expenses) paid out as distributions.

      I very much value safety. I'm a long-term TIPS investor. All I'm trying to do is hold onto the purchasing power I already have. I've been investing in TIPS and I-Bonds since 2000 and have no complaints.

      Given the options you have and that you value safety, you might consider splitting your money between the money market and TIPS. Over the ultra long-term, I would expect TIPS to outperform the money market though.

      Just opinions of course.

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