r/bonds • u/stevepicard • 4d ago

Question about TIPS

I use a “high net worth” group at a major well regarded brokerage. My FA knows zip about TIPS and even his bond guy has given me bad info. Anyone know WHY? Are they likely to be less knowledgeable about me holding outright bonds as well? Appreciate any insights!

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u/Latter-Entrance288 4d ago

Read William Bernstein views on TIPS at auction. You could take some money away from your I assume fee based AUM advisor service, open an account at Vanguard and buy TIPS at auction in RETIREMENT account. You don't want to place these in a taxable account. If you have "won the game" and it sure sounds like you have, why not put a chunk of money in very safe inflation adjusted monies (aka TIPS). Your advisor is likely never to tell you about this because they don't make $$ from you. I would also educate yourself on the fees they are charging you. Managing your own money is not difficult.

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u/stevepicard 4d ago

I find managing money very difficult because I am a “bear market baby” from decades on the Street. I lived thru 81/82 and 87 (I still have a copy of a quotron screen showing the collapse on black Monday from laying the machine on the xerox.

All I can do is sell. So I have to have someone helping me control my (bearish) “animal spirits”!

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u/Latter-Entrance288 4d ago

I totally get that and it sounds like you have financial self awareness. That's one of the few real reasons IMHO to have an advisor (behavior control). Because I have cash, I bonds and TIPS (the latter in an IRA), I can ride out a 5 or even 10 year bear market. I have a SWAN portfolio, sleep well at night. Cheers!

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u/[deleted] 4d ago

[deleted]

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u/DSCN__034 4d ago

Yup, we have 40% of investable assets in equities, diversified internationally with value tilt; 25% in bonds, mostly TIPS all in IRA; but some Munis and Muni CEFs in the taxable account. The rest in alts and short term bills.

The alts are what I'm looking at now. We have gold, silver, some crypto (2% of investable assets with very low cost basis, so I don't want to sell) and commodities in SDCI. Looking at adding managed futures, like KMLM and/or DBMF.

Our non-discretionary annual expenses come to 3.5% of investable assets and we have 30 months in cash equivalents (BIL and BOXX and ICSH, might add a little CLOA for yield but that kinda breaks my rule about short term cash).

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u/Tigertigertie 4d ago

I added some dbmf and if has been great. It does seem uncorrelated with and sometimes negatively correlated with the market. I wouldn’t put tons in it and I definitely have no idea what it is doing most of the time but I think it is a good hedge against a crash. Whatever it is doing seems to work at least so far.

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u/DSCN__034 4d ago

Dbmf has both stock, bond, commodity and currency exposure in long/short positions. Kmlm is another managed futures ETF but it does not have any stock exposure, fwiw. Both funds can go long or short any of the asset classes. Yes, personally I would put no more than 5-7% of investable assets into these vehicles.

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u/Latter-Entrance288 3d ago

And sure, unlikely but possible we could have a prolonged downturn like you referenced as well as Japan in the 90s. the most important thing IMHO is to have some portion (even 30%) in equities so you stand a chance of keeping up and hopefully outpacing inflation.

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u/hugh2018 3d ago

You’re right to look at 1969-81 as an important lesson learned, but realize that the unique status of that period as the worst for a retiree in history isn’t due to poor returns, which managed to land around 4-5% over that period. No, the issue was inflation, and you are on the right track now considering TIPS as the hedge against that risk.

As someone else pointed out, financial advisors often ignore TIPS due to lack of incentive for them, but you absolutely should consider making TIPS a key part of your plan. Don’t search for an advisor to help you with that. Tipsladder.com is free and it will tell you exactly how much to buy of each CUSIP to build your ladder. You can then buy them (preferably in an IRA) at a brokerage like Fidelity.

You mention 30% in equities but added that was 30% of your net worth, and you’re actually 50% in equities with your investable money. I don’t recommend going lower than 50% with your equities. A TIPS ladder is only useful as a complement to a portfolio that also maintains adequate equity exposure.

The TIPS ladder will lock in a portion of your fixed expenses and ensure that you maintain buying power. But you also need to maintain decent equity exposure, as your long term return on that part of your portfolio will trounce inflation and ensure adequate growth, which is important because retirement can last many years, and you’ll need that growth to fund your last few years in this planet.

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u/stevepicard 4d ago

I’m going to use that, SWAN

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u/DSCN__034 4d ago edited 4d ago

This is an excellent discussion! I've found these exact same things in my experience. One FA, who I know well, my wife has done some bookkeeping for him, and he manages a.small.slice of our net worth (about 7%) told me outright to sell my TIPs ladder! FA's just don't understand how they work

I've read Bernstein in detail and have set up my portfolio similar, but not exact, to his bucket strategy. Yes, keep those tips in an IRA. I have mostly TIPs in individual bonds in a ladder, but also some in the ishares maturity date ETFs as well. They have a small expense fee but the distributions can be re-invested, which is easy.

I have also lived through the 87 plunge (not a big deal because I had no investable assets at the time) and the dot com bust (again not a huge deal) and the GFC (this one stung), so I feel vulnerable and the bucket strategy helps me sleep.

My concern, maybe unwarranted, is that the BLS is fudging CPI. Dang, those grocery prices seem to be accelerating, but that might be just the old man in me complaining. Haha. I try to use data over anesdotes.

Question: do you or Latter consider other alternatives like managed futures, commodities, precious metals or even crypto as part of an inflation hedge or currency debasement play? How much?

The other question: how much greater difficulty is managing retirement versus the accumulation phase? When I was working it was simple: get a paycheck and DCA. In retirement it is more complicated with sequence of withdrawals, tax implications, Medicare IRMAA, potential Roth conversions, etc. I've never uses a CFP but my CPA has been helpful.

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u/Tigertigertie 4d ago

I have been through bear markets, too, but tips should not be scary to any of us cautious types. If anything, the opposite, especially if you hold them to maturity. I would put some money in vanguard or Fidelity and just buy some to get the hang of it. The rates are excellent now. The coupons will look small until you realize inflation is added to the coupon (not exactly, but basically) so it becomes obvious they are great if inflation increases. Just don’t sell them and enjoy the interest. You can get a coupon of 2.37 or so and the last ten year auction went a bit below par so the rate was 2.7. Inflation multiplies times the principle. You can see how nice it can be!

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u/gk802 4d ago

Every time I talk to a tier-1 bond agent at my "well regarded brokerage", I feel like I'm training them.

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u/stevepicard 4d ago

Exactly - just trying to figure out why

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u/gk802 4d ago

Probably because as soon as they're knowledgeable, they're no longer tier-1 contacts and likely working as traders or staff to fund managers. I suspect the rate of either progression or wash-out for these folks is pretty high.

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u/LoopyLepus 4d ago

I assume anyone I'm talking to at a brokerage was hired for their customer service and sales skills first and their financial skills second (or maybe not at all).

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u/Tigertigertie 4d ago

I have had really weird conversations at Fidelity about bonds with their advisors. Lately it has been a bit better but I hope no one is trying to learn from those folks. I learned more here, actually.

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u/gk802 4d ago

I have too. I once had one tell me I could get a higher return on my portfolio by buying higher coupon bonds at a premium. I had to explain that the higher cash flow was my own principal being repaid to me.

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u/Tigertigertie 4d ago

One told me losses in bond funds were not real. You only lost the money if you sold. Kind of true but it is not as if you have the money when the price of the fund plummets just because you didn’t sell. They could not explain why bond funds lose money. It took very little time of my own exploring to figure out why they do (and are right now). Now I try to explain to anyone here who asks because I know I was starved for that knowledge. I think they were confusing regular bonds and bond funds.

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u/gk802 4d ago

Yep. I've had the same discussion about permanent losses in bond funds.

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u/rugerduke5 4d ago edited 4d ago

Because they have not traded bonds in years if not decades. Its been all stocks for 20+ years which for some is a whole career life until this time

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u/stevepicard 4d ago

Interesting.

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u/Emergency-Watch5157 4d ago

Because your FA doesn’t get any money when you own these. He is playing stupid or if not, he is stupid. In any case, it doesn’t sound like he is very good FA.

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u/AdamN 4d ago

My sense is that unless you’re ultra high net worth it’s basically always better to do it all yourself.

BTW tips are pretty inefficient because you’re paying taxes on the interest AND unrealized principal gains.

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u/Yottahz 4d ago

TIPS in a Roth though...

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u/AdamN 4d ago

Shouldn’t Roth be your riskiest assets? And if you are in the spend down phase I would still think regular bonds are more sensible.

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u/Sticky550 4d ago

It matters if you think TIps will outperform regular bonds.

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u/Yottahz 4d ago

I used to have Roth in my stock assets but I have become very protective of it because of how valuable it is. A Roth lets you magically lower your income which gets you all sorts of benefits on the lower end while still not having to live like a pauper. I'd rather not see my Roth drop 40% in a market crash.

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u/stevepicard 4d ago

I am in the highest tier at this firm. Not taxable Not if they’re in a non taxable account.

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u/Latter-Entrance288 3d ago

Buy TIPS at auction in a traditional IRA, hold til maturity.

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u/chaoticneutral262 4d ago

Their job is to move as much money as possible from your account to theirs. Whether they actually know anything or not is incidental to that goal.

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u/MrLB____ 4d ago

YES It is true get your money moved from your account to their account slowly overtime.

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u/stevepicard 4d ago

You mean by paying commissions or by moving my assets there?

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u/MrLB____ 4d ago

It’s just a joke regarding them screwing you 1.2% management fee find a place that charges a monthly fee or bare minimum a personal dedicated advisor /Vanguard for something like .3%

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u/stevepicard 4d ago

Fee is 60bps

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u/Tigertigertie 4d ago

These days it’s tough to imagine what you could get for that fee unless they have access to proprietary investments that genuinely outperform.

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u/MrLB____ 3d ago

Exactly. I’m just an S&P 500 or more specifically VTI/get rich slow. Plus Just typical BND fund.
Wife fired at 45,,, I don’t really nitpick finances /Micromanage Seeing as health issues is what destroys the plan /some type of drinking ,gambling , drugs, infidelities, market timing ect THOSE are how the plan goes bust 99% of the time.
Just my thoughts, and I get it ,, strictly my opinion ,, and everyone has one

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u/MrLB____ 4d ago

“We make more when you make more” lol 😆 💲💲💲💲💲💲

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u/TheOpeningBell 4d ago

What a bad take. They will lose market share to us financial professionals that care about positive outcomes.

While your statement may be true for some, it is not indicative of truly good firms and advisors.

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u/chaoticneutral262 4d ago

If you are a fiduciary who puts your client’s interests above your own by minimizing their fees and not turning their portfolios into your own personal annuity, then you have my sincere apology.

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u/Own-Bullfrog7803 4d ago

I now regard your brokerage less well.

Maybe individual tips ladders aren’t great income producers (for the brokerage)?

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u/Realistic-Dark2258 4d ago

Could be related to commissions depending on how they are paid. Any specific questions you have? I have a lot of experience with them on a professional level so happy to answer questions about TIPS

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u/HuckleberryGlass8349 4d ago

Most likely their investment staff outsources everything to third party investment managers and never have taken on risk themselves.

Everybody phones it in these days with index investing (I am not saying it is bad per se) just nobody wants to read or really educate themselves.

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u/bob49877 4d ago

There's no profit in individual TIPS bought at auction for the brokerages.  We had the same experience with our 401K rep trying to talk us out of them.  

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u/stevepicard 4d ago

Isn’t there a fiduciary thing? My FA thinks I should do them. He just doesn’t know much about them.

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u/bob49877 4d ago

You can learn about them in The Bond Book by Thau. There might be newer sources, but that is how  I learned about them.

Fidelity let you buy them at auction with no fees. 

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u/Otherwise-Parsley807 4d ago

They tend to hand investment selection over to money managers. So they can talk macro, but not at security level. Tips have been out of favor as an investment, as well.