Victor Haghani author of The Missing Billionaires on whether one should own individual TIPS bonds vs TIPS etfs.
And of course this doesn't even take into account duration matching of two or three TIPS etfs to your estimated investment horizon. This type of duration matching only has to be approximate to generate relatively safe income. The point of all these endeavors is to produce relative safe income - not produce "exactly" safe income at a specific point in time when you will not necessarily need exactly safe income. You also want to consider the ease of using etf and I-bond holdings vs the complexity of holding TIPS bonds for safe income. If you don't think holding safe income thru individual TIPS holdings is complex, read the posts by Kevin M and #Cruncher on this topic and tell me with a straight face that more than 1% of Bogleheads could correctly execute what they propose.
BobK
Link to article - https://elmwealth.com/tips-protection/?_hsmi=306365825The question, “Should you buy bonds or bond funds?” gets a lot of discussion in the financial press. We often read that it’s better to buy individual bonds rather than bond funds, as you will never suffer a loss on individual bonds as long as you hold them to maturity. We think this argument is, at best, confused.
If you want to protect against inflation or lock in a real rate of return to a specific date, then you should buy and hold individual bonds, whose maturity will naturally run down as you approach your target date. However, we think this is a relatively rare use-case. Few people, even those getting on in years, have a specific date with their name on it. Instead, many investors either have a medium-to-long and rolling horizon, or are allocating between asset classes.
In either of the latter cases where you’re trying to maintain the duration of a bond portfolio, the mechanics of holding individual bonds versus a bond ETF will be very similar. In both forms, bonds will naturally be running off, and you’ll be replacing them by buying new issues.11 If the ETF is trading close to its Net Asset Value, as TIPS ETFs normally do, the returns will also be very similar between holding the ETF and a similar portfolio of individual bonds. The main difference will be that the ETF charges a management fee (0.03% in the case of SCHP), but is more convenient and likely has lower transaction costs than managing your own portfolio of individual bonds.
And of course this doesn't even take into account duration matching of two or three TIPS etfs to your estimated investment horizon. This type of duration matching only has to be approximate to generate relatively safe income. The point of all these endeavors is to produce relative safe income - not produce "exactly" safe income at a specific point in time when you will not necessarily need exactly safe income. You also want to consider the ease of using etf and I-bond holdings vs the complexity of holding TIPS bonds for safe income. If you don't think holding safe income thru individual TIPS holdings is complex, read the posts by Kevin M and #Cruncher on this topic and tell me with a straight face that more than 1% of Bogleheads could correctly execute what they propose.
BobK
Statistics: Posted by bobcat2 — Thu May 23, 2024 1:28 pm — Replies 9 — Views 485