Prasanth Manthena: ‘I’ve been actively buying TIPS for over six months because the housing market and threat of inflation had/has me worried. I tried to balance my fears out as well with the dollar and inflation by also buying T. Rowe Price’s International Bond Fund. Holding cash as some have suggested seems really scary with the prospect of inflation so bad that TIPS yield less than zero now, as you pointed out yesterday. Both funds have done well but now maybe both of them are not safe bets either. This is a scary time as nothing really seems safe even after the financial shocks should have created areas where value should be found. I wasn’t able to glean from your post yesterday what you would do with TIPS – i.e., if you had them in a fund like Vanguard’s?’
☞ When I first suggested them, the long-term TIPS yielded about 4% above inflation (more than twice what they yield now). To me, it was a pretty easy call, at least as a core holding in a retirement plan. And I made the case for buying the longest term TIPS (which at the time was nearly 30 years).
By now, with the ample appreciation they’ve enjoyed (both from the inflation adjustment and the rising price of the bond), they represent about half my mom’s IRA. Would I buy more now? No. Would I sell? I’m torn. In my own retirement plan, I did sell, hoping to sit on cash until some irresistible opportunities come along. Whether with hindsight that will have proved smart remains to be seen. So far, I’d have been smarter holding onto the TIPS.
Short-term TIPS, meanwhile, may not yield much, but they do rank high in terms of safety. I think you can sleep pretty well with your Vanguard fund.
George Hamlett: ‘If you haven’t seen this from the London Telegraph [‘The Federal Reserve’s rescue has failed’], you really should consider it. The bottom is not yet in sight, and maybe not even close. Evans-Pritchard may be something of an alarmist, but he’s not a fringe voice.’
☞ George is right; the link is worth clicking. Getting out of this box will not be easy.
We need something to lighten things up.
How about an original limerick?
There once was a trader from Bristol
Losing money by hand over fistful
He said with a moan
As the bank called his loan
‘Watch me blow out my brains with this pistol!’
No, wait. That’s not good. How about:
Roses are red,
The future will really be brightish!
That’s the ticket. This too shall pass.