Thinking about TIPs (bond, IRA, fund, cash)

[Good4Nothin]

I have been trying to think of investments that would protect against inflation. So I wonder if TIPS would be a good idea.

[mathjak107]

Originally Posted by Good4Nothin

I have been trying to think of investments that would protect against inflation. So I wonder if TIPS would be a good idea.

they are not terrible but i would never count on them to keep up with my lifestyle costs .

they may not even keep up with actual inflation .



Numbers in a spreadsheet do not tell you about political risk that often comes with high inflation. You have to use some intuition and historical extrapolation to guess what results from high inflation and why you don't want to use TIPS.

1) High inflation is a political problem in almost every case. The people causing the inflation know they are doing it.
2) Because high inflation is unpopular with the masses, the people in charge are always going to lie about it as long as possible to deflect blame.
3) Then when lying doesn't work, they will implement policies like price controls to make it look like they are doing something. This always makes it worse.
4) Along the way, they will manipulate economic numbers to try to trick the markets. However the markets are much smarter than the typical politician, who is usually an idiot based on my experience.

But these things are not going to show up in Excel. There is no ("IDIOT POLITICIAN ) function you can call. There is no way for you to anticipate what actions they will take to lie about the situation. And, there is no way for you to know how the markets are going to react to the mess.

I will only suggest that the markets will figure out the right thing to do and that right thing usually is not relying on government numbers about inflation.

so tips are like buying fire insurance from an arsonist

Or you can simply go back and read Nixon's, Ford's and Carter's speeches about inflation in the 1970s. It was lie after lie after lie. A decade of lies.

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.

for higher inflation i would use :

a small amount of TIPS like vtip . these are short term

a floating rate loan fund like FLOT

GOLD gld

COMMODITIES dbc

Caveat emptor.

[Good4Nothin]

Originally Posted by mathjak107

they are not terrible but i would never count on them to keep up with my lifestyle costs .

they may not even keep up with actual inflation .



Numbers in a spreadsheet do not tell you about political risk that often comes with high inflation. You have to use some intuition and historical extrapolation to guess what results from high inflation and why you don't want to use TIPS.

1) High inflation is a political problem in almost every case. The people causing the inflation know they are doing it.
2) Because high inflation is unpopular with the masses, the people in charge are always going to lie about it as long as possible to deflect blame.
3) Then when lying doesn't work, they will implement policies like price controls to make it look like they are doing something. This always makes it worse.
4) Along the way, they will manipulate economic numbers to try to trick the markets. However the markets are much smarter than the typical politician, who is usually an idiot based on my experience.

But these things are not going to show up in Excel. There is no ("IDIOT POLITICIAN ) function you can call. There is no way for you to anticipate what actions they will take to lie about the situation. And, there is no way for you to know how the markets are going to react to the mess.

I will only suggest that the markets will figure out the right thing to do and that right thing usually is not relying on government numbers about inflation.

so tips are like buying fire insurance from an arsonist

Or you can simply go back and read Nixon's, Ford's and Carter's speeches about inflation in the 1970s. It was lie after lie after lie. A decade of lies.

TIPS may be OK for the cash portion of the portfolio. But I wouldn't rely on them in the slightest for protection against high inflation. For lower inflation the bonds and stocks are all you need.

for higher inflation i would use :

a small amount of TIPS like vtip . these are short term

a floating rate loan fund like FLOT

GOLD gld

COMMODITIES dbc

Caveat emptor.

Thanks. Yes I remember you saying this about TIPs in another thread. I understand the government wants inflation because they are so much in debt. And as you say they don't care about those of us who are not in debt.

Inflation has become just another fact of life, and everyone expects it. But in reality they are stealing our money.

[mathjak107]

Originally Posted by Good4Nothin

Thanks. Yes I remember you saying this about TIPs in another thread. I understand the government wants inflation because they are so much in debt. And as you say they don't care about those of us who are not in debt.

Inflation has become just another fact of life, and everyone expects it. But in reality they are stealing our money.

i can't say i am any worse off for it ...

income has grown far more , investments are higher then anytime in my life far exceeding inflation .... if that is the result of stealing my money , take more of it ...

remember , it is about learning to play the cards you are dealt , not complain about the dealer.

so far personally i have seen no negative effect .. it is like all our ships rose with the tide as far as our lives go . your life may be different if you didn't play those cards to stay ahead over a lifetime

[1insider]

Would a MYGA be a safe and higher-yielding alternative to TIPS? leastprime and Richard18, I think, have made good arguments for their use for part of the fixed income portion of one's portfolio. I know nothing about them other than what I've read here.

[jiminnm]

Originally Posted by Good4Nothin

I have been trying to think of investments that would protect against inflation. So I wonder if TIPS would be a good idea.

Here is one article about them.
https://www.thebalance.com/how-do-tips-work-417128

If there is inflation, rather than increase the interest rate, the principal value is increased when inflation occurs so that the return to the bond holder is equivalent to what the bond holder would have received with the increased interest. The major difference is that the increase in principal is a taxable event. So, one has incurred a tax but receives nothing until the bond is sold or matures.

[Good4Nothin]

Originally Posted by jiminnm

Here is one article about them.
https://www.thebalance.com/how-do-tips-work-417128

If there is inflation, rather than increase the interest rate, the principal value is increased when inflation occurs so that the return to the bond holder is equivalent to what the bond holder would have received with the increased interest. The major difference is that the increase in principal is a taxable event. So, one has incurred a tax but receives nothing until the bond is sold or matures.

But then when the bond is sold or matures, you don't pay any tax, right?

[mathjak107]

fidelity has a fund geared for rising inflation fsrrx .....

inflation oriented assets have not been the place to be for many years as stocks and bonds provided plenty of inflation adjusting over the years .

it holds

Inflation-Protected Debt


Floating-Rate Debt-
-
Commodities & Related Investments-

real estate debt and equity

mortgage debt------

[Carmine19]

Originally Posted by Good4Nothin

But then when the bond is sold or matures, you don't pay any tax, right?

Its best to buy TIPS in an IRA account. Tax reporting is a pain.
Consider ibonds although limited to 10k per year per SS #.

[Good4Nothin]

Originally Posted by Carmine19

Its best to buy TIPS in an IRA account. Tax reporting is a pain.
Consider ibonds although limited to 10k per year per SS #.

I don't have an IRA account.

$10k per year is not enough.

I can't do anything until March when one of my CDs matures. It will probably take at least until then to figure this out. I might never figure it out.