Too Late To Buy TIPS ETF?
Last November I was looking to park my IRA in something other than the stock market while traveling. I ended up with the Lehman Short Term Bond fund (SHV) because I couldn't find an inflation protected ETF. Apparently, I didn't look hard enough. Lehman markets the iShares TIP, which has been around since 2003 as a tracking fund for Treasury Inflation Protected Securities. When I made my big move into SHV, it was around $110.15. Now it's around $110.10, and has been lower in the interim. Good thing it pays a little interest. If I'd bought into TIP at the same time, I could have gotten it for $106, it's now around $107, but was much higher in the interim.
A year ago, TIP was down under $100, so it's up over 7% on the year, which is pretty good for an investment that may let you sleep better. I say may, because if I'd bought TIP in early 2005, when I was sure the economy was teetering on the brink, I'd have paid $107 and watched my investment fall 10% over the next year or so. So my conclusion is, if you really want an inflation protected security, you have to buy the security, not a fund or an ETF. As usual, my conclusion is that the Fed wants to turn us all into speculators for the good of Wall Street.
The base interest rate for TIPS at the last treasury auction turned out to be 1.75% for the twenty year and 1.625% for the ten year on January 31st. Other than that, you're counting on the CPI-U to do a fair job of modeling inflation, which it doesn't, so they can adjust the principal value of the underlying security every six months.
I thought a lot about that and the tax implications of owning TIPS direct, and decided to by some shares in an agricultural ETF instead. It's another Powershares Fund, the DB Agriculture Fund (DBA), I was attracted to the symbol since I'm a DBA myself. In the end, I'm just hoping that housing prices fall faster than inflation eats into my principal. That's what I call saving for the future!
A year ago, TIP was down under $100, so it's up over 7% on the year, which is pretty good for an investment that may let you sleep better. I say may, because if I'd bought TIP in early 2005, when I was sure the economy was teetering on the brink, I'd have paid $107 and watched my investment fall 10% over the next year or so. So my conclusion is, if you really want an inflation protected security, you have to buy the security, not a fund or an ETF. As usual, my conclusion is that the Fed wants to turn us all into speculators for the good of Wall Street.
The base interest rate for TIPS at the last treasury auction turned out to be 1.75% for the twenty year and 1.625% for the ten year on January 31st. Other than that, you're counting on the CPI-U to do a fair job of modeling inflation, which it doesn't, so they can adjust the principal value of the underlying security every six months.
I thought a lot about that and the tax implications of owning TIPS direct, and decided to by some shares in an agricultural ETF instead. It's another Powershares Fund, the DB Agriculture Fund (DBA), I was attracted to the symbol since I'm a DBA myself. In the end, I'm just hoping that housing prices fall faster than inflation eats into my principal. That's what I call saving for the future!
posted by Morris Rosenthal | 2:12 PM
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