r2i forum

I need tips for buying TIPS.

I am getting concerned about inflationary pressure ( with Qe2 and improving job market) .
I want to buy TIPS (inflation indexed bonds ) .What is the best place to buy it ? directly from TD or through vanguard / other broker.

Any analysis on TIPS at this time ?

P.S i google-searched this forum and everyother 'tips' shows up.

sophisticuss;346329I need tips for buying TIPS.

I am getting concerned about inflationary pressure ( with Qe2 and improving job market) .
I want to buy TIPS (inflation indexed bonds ) .What is the best place to buy it ? directly from TD or through vanguard / other broker.

Any analysis on TIPS at this time ?

P.S i google-searched this forum and everyother 'tips' shows up.

If you want to buy the bond then buy it directly from the treasury using their website.

If you want a shorter term trade, then a mutual fund or an ETF for a basket of inflation indexed bonds would be more appropriate.

The symbols are.

VIPSX - open ended Vanguard mutual fund
TIP - Ishares ETF on TIPs

Fidelity and other mutual fund houses also have MFs on the basket of TIPs.

Desi;346426I bonds and Tips are not the same (although closely related species).

http://www.treasurydirect.gov/RI/OFNtebnd

Agreed.

However, I-Bond is a very simpler process. I thought OP is interested in inflation protection and has heard of only TIPS at this point of time. During research when he comes to know of another option, I-Bond, he/she might consider them too.

So, I just posted my views on I-Bonds.

But thanks for clarifying to OP, that I was actually talking of a different (related) product .

OP, just an FYI.. I-Bonds is another option you might consider.. It is easier to buy, easier to sell.

To buy I-Bond, you can walk into your bank with a $50 check and get out with a receipt. Your I-Bond will be in your mailbox within a week. Another option is to create a login at TD. Use your checking account to purchase an I-Bond for as little as $25.. You could use your credit card to buy these in the past.. Not any more...

To withdraw money from an I-Bond.. you can just walk into any bank.. Walk out with money within 5 minutes. yes just 5 minutes is all it takes to get your money back from an I-bond.

But again, TIPS has its own pluses... Your personal preference would decide the route...

http://www.treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm

I-bonds

Pros.
- interest is tax deferred so can be easily owned outside IRA
- easy to buy and sell. No commissions involved.
- Protection against inflation showing up in CPI
Cons.
- Fixed rates are way low (<0.5%) now. Used to be 2-3%
- You are now limited to buy only $5000 or so per year.
- Govt. can understate CPI and then you won't get the inflation protection you desired.


TIPS bonds

A great article at morningstar (subscription may be required.)

http://news.morningstar.com/articlenet/article.aspx?id=358415&pgid=fundarticle

Pros.
- No limit on how much can buy
- Protection against inflation showing up in CPI

Cons
- Transaction costs. (Can not buy from govt. at face value. Must pay broker cost if selling before maturity.)
- Potential annual tax headache if bought outside tax advantaged accounts.
- Govt. can understate CPI and then you won't get the inflation protection you desired.
- Short duration TIPs are selling at negative rates now. So returns are not expected to be high. (You may beat an equivalent bond if CPI inflation >1.5% or so, but your absolute total return will not be high.)
- If you buy something in the secondary market with high embedded accrual, you may actually lose money in case of deflation. (Please reference the article for details.)
- How these bonds will behave if interest rates rise may not be straightforward.

TIPs mutual funds/ETFs
- Same thing applies as above except that you may be able to buy without transaction costs at NAV and at least you will see a distribution for your taxable income.

Nice article on negative yeild

Why the Concern over Negative TIPS Yields Is Overblown