No, no, no. Stop thinking in nominal dollars and start thinking in real dollars. Real dollars are what you will be spending in retirement....This seems to me to be risky, as you are making essentially a forever bet on real rates all at once...
It is investing in nominal bonds that are making essentially a forever bet on inflation.
Of course, if your goal in investing is to beat someone or something else, then who knows? But if your goal in investing is to provide for future spending, TIPS are less of a bet.
Of course, if the market is right and has guessed future inflation correctly, then there's very little difference between TIPS and nominal bonds and it doesn't matter much.
Wow, lots of replies. Let me start with this one, as it is not from one of the usual TIPS ladder posse.
Sorry, I cannot follow what you are saying. When you buy a TIPS ladder, you are forever locking in a specific real rate. Forever. Using my example updated for today's market action, if I invested $1m in a TIPS ladder on October 1, I would receive real interest coupons of $17,600 per year every year or $1,467/mo on average. If I had made the same purchase yesterday, I would receive real interest coupons of $20,700 per year every year or $1,725/mo on average.
So by buying into a ladder just a few weeks earlier, I have forgone income of $258/mo, forever!!
To me, this few-week real-life scenario encapsulates well (along with the lack of dividend reinvesting) why I stay with TIPS funds. Funds adjust to changing market conditions while a one-off ladder purchase cannot. You can never be sure when is the right time to make that ladder purchase.
Statistics: Posted by Ferd Burfel — Tue Oct 22, 2024 12:10 am — Replies 54 — Views 2482