I don't think you are missing much, if anything. It certainly is an individual decision, and everyone's situation is different.My understanding is that there is no significant advantage to shifting all excess 2034s to 2035s, and, in taxable, my feeling was that there could be a tax disadvantage because of the higher coupon of the 2035s.
My apologies. With several folks posting that they are shifting all their excess 2034s to 2035s, I incorrectly assumed that was what you were discussing also. Your plan seems fine. What I am doing is very similar, except 2036 is the last rung in my plan.
Am I missing something?
Jaylat gave a nice summary of some of the pros and cons of shifting the excess from one year to another. I don't think it makes much difference. My decision has been a compromise where I have shifted every other year (first shift was from 2032s to 2034s) to minimize trading costs.
Just filled the 2035 rung of my TIPS ladder. In doing so there were two options, (1) buy only the amount needed for the 2035 ring and leave the rest of the excess TIPS in 2034’s or (2) sell all of the excess 2034 TIPS and move them into 2035 TIPS. I chose the latter for the following reasons:
In general, it’s better to narrow the gap in years to be filled in the TIPS ladder, as it reduces the potential interest rate risk that might be incurred in future duration matching. If the shape of the yield curve changes, a 4-year gap is slightly less risky than a 5-year gap;
The 2034 TIPS were close to par (for me) so minimal tax consequences from selling them at a gain or loss;
The 2035 TIPS have the same 2.125% coupon as the 2040 TIPS, so buying and selling those two TIPS simultaneously didn’t affect the income stream.
The negative of selling all the excess 2034 TIPS and buying additional 2035 TIPS is the potentially higher trading cost incurred as you move the excess TIPS from one year to the next. You have multiple larger trades, each with a bid/ask spread each year. The spread is pretty low at this point, though, and there’s no guarantee that future bid/ask spreads will be as tight.
That was my logic. Not saying this is the right way to do it, just what seemed to work for me as to how to best manage my TIPS portfolio given the current situation.
Statistics: Posted by MtnBiker — Mon Feb 10, 2025 11:54 pm — Replies 502 — Views 66241