5-Year TIPS

MOVIES

You must under no circumstances see Role Models if you are offended by crude and sexual content, strong language and nudity. Or if you have no sense of humor. Otherwise, it’s great fun. The word on Sean Penn’s Milk is U.S.D.A. Grade A.

AND SPEAKING OF MILK: “I DO” BUT YOU CAN’T

You will recall that on November 4, Californians narrowly passed Proposition 8, rescinding the recently-granted right of same-sex couples to marry. (Both the California Supreme Court and the California Legislature had affirmed this right.) According to one poll, the resulting 300 protests around the country have persuaded 8% of Prop 8 supporters to regret the way they voted. (As in, ‘Huh. If I had realized so many people would be upset at having their rights rescinded, I would have voted ‘No.’ ‘) Had they voted the other way, the results would have flipped: instead of 52%, just 48% would have voted yes and marriage would still be legal in California.

This piece in the Christian Science Monitor asks ‘When should a majority have the power to take away a constitutional right granted by a court? It’s a question that forces us to think about why we have constitutional rights in the first place, and why they are enforced by judges.’

5-YEAR TIPS

Earlier this week, I put some of my retirement fund in 5-year TIPS (Treasury Inflation-Protected Securities). The price has come up a hair since then, but I think they still offer a safe haven for money you can’t afford to risk. Closing just under $930 per bond (I paid $921.56), they pay a paltry $6.25 a year in interest (give or take) but will be redeemed for $1,000 April 15, 2013, plus any increment by which the CPI may have risen since they were issued.

This is no way to get rich – it works out to a ‘yield to maturity’ of about 2.3%-plus-inflation – but it protects, at least pretty well, against three things: deflation, inflation, and losing your money. If we have extended deflation, which I doubt, you will be very pleased to get $1,000 back for your $930 bonds: $1,000 will buy more than it does today. If, as is more likely, we have significant inflation, your bonds will be redeemed for a price that reflects much of it. And while other bond issuers may go broke, the U.S. Treasury is unlikely ever to default outright on its debt. (That’s what inflation is for: a face-saving way to stick it to long-term debt holders without having to declare bankruptcy.)

So you won’t get rich, but you won’t lose your money, either.

Meanwhile, the 30-year TIPS have come way back down in price, too, now yielding a hair above 3%-plus-inflation. They are worth a look as well.

Bear in mind that TIPS are best held in retirement accounts, because the inflation adjustment is taxed as income even though you don’t actually get it until you sell (or redeem) the bonds.

Also, that there will come a time – possibly a couple of days ago, more likely some time in the future (but we won’t know that until way in the future) – that it will have been tragic to invest in something safe like TIPS when, it will be clear with hindsight, you could have made double and triple and ten times your money taking more risk.

Five-year TIPS selling under par are for money you can’t afford to lose.

Click here to learn lots more about TIPS.

Coming Soon: I have discovered a terrific way to cook eggplant