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iShares TIPS Bond Message Board

  • leuyenl leuyenl Jul 1, 2011 11:54 AM Flag

    MarketSafe Timeless Metals CD

    All,
    Anyone has insight about this MarketSafe Timeless Metals CD? Which one is a better choice in your opinion b/w this and 10 year TIPS right now? Assume that I can hold to maturity. Thank you.

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    • "Total Price Change is the average of the percentage price change for the 5 commodities, with the price change capped at 50% for each commodity."

      That 50% price cap per commodity is how they will make their money.

      Keep in mind that the best you can possibly do is 1.5x your money over 5 years and that's only if every commodity in the basket appreciates by 50% or more.

      That works out to 8.4% per year.

      1.5^(1/5) = 1.084

      In theory, TIP could pay a lot more than that if inflation really picks up.

      Further, we could get inflation without generally rising metal prices (especially if oil rises to the point that it chokes industrial metal demand).

      In January 1980 the CPI was 77.80.
      In January 2000 the CPI was 168.80.

      That's a 117% increase.

      Buying gold (and silver) in January 1980 and selling in January 2000 would have been an awful hedge for that inflation.

      According to Kitco:

      In January 1980 gold averaged $675.
      In January 2000 gold averaged $284.

      That's a 58% loss. Too many investors bought gold in 1980. There's a risk that too many have done so now. For what it is worth, I have no desire to own metals at these prices. I could be wrong to think this way of course.

      • 1 Reply to markm0722
      • Markham's post is interesting in that it confirms my prior remarks that we might well experience different variants or sources of inflation: demand pull (arising from money supply increases and complementary spending velocity, for which TIPs and I-bonds are best suited), cost push (which may flow from cost increases for a prevalent item like oil), or structural (wherein finite resources are diverted from private to public use, thus begetting scarcities or price increases in the private market -- think here wartime rationing). Hence while TIPs and I-bonds may be a prudent emphasis or center of the portfolio (as is mine), some exposure to commodities is also wise. EverBank's Market Safe Metals CD, prior issues of which I've invested in, may offer but limited exposure to commodity-based benefits, but also cabins risk by ensuring preservation of principal. In the risk-laden world we're in, that may be an acceptable trade-off for some.

    • Safe??

 
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