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Security of specific funds?

Submitted by jim@jward.org on 15 September 2007 - 9:21pm

Not sure where to post this, or even if it's appropriate to ask on esp.com, but here goes:

Using esplanner, I made the decision to retire early this year. Going slightly against conventional wisdom for someone my age I placed all retirement account funds into Vanguard TIPS funds, and all non-retirement savings into a Vanguard municipal bond tax-exempt fund, willing to forgo potential greater returns for "ultimate" security, reasoning I am satisfied with the returns of the chosen funds. Combined, the funds amount to approximately two thirds of my net worth.

Here's the question(s): Are these two types of funds equal in security to actual ownership of TIPS or municipal bonds? Returns, discounting the inflation protection provided by the TIPS, aren't much different from FDIC insured deposits right now.

Having retired, I'm suddenly of the "widows and orphans" mindset, valuing safety of my cash assets above all else.

Thanks in advance for replies, and please let me know and accept my apologies if this is inappropriate.

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Submitted by Laurence Kotlikoff on 16 September 2007 - 8:26am.
1

Holding a mutual fund invested in Treasury Inflation Protected securities (bonds), known as TIPs, is not the same as buying and holding TIPs directly. The reason is that the fund manager is free to buy and sell tips each day to try to make capital gains. She may end up making capital losses. I think for your purposes the best thing to consider is buying long-maturity TIPs. You'll then know for sure precisely the real return you'll receive over time. best, Larry

Submitted by jim@jward.org on 16 September 2007 - 1:08pm.
2

Thanks, Larry, that's what I suspected; I guess now I'll have to try to figure out how to buy TIPS directly for my SEP and my wife's roll(ed)over IRA.

Submitted by Anonymous on 16 September 2007 - 4:13pm.
3

There's a good discussion of how to buy them separately in Zvi Bodie's book, Worry Free Investing.

Submitted by jim@jward.org on 16 September 2007 - 5:08pm.
4

royerd at gvsu.edu wrote:There's a good discussion of how to buy them separately in Zvi Bodie's book, Worry Free Investing.

Thanks, I'll take a look; having all the TIPS in an SEP and IRA may make it a bit more complex.

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