TIPS - why/when/how

[habsui]

I am reestablishing bond positions after selling almost all of them in 2021.

For the first time, I am considering putting 10-15% of my bonds in TIPS. The thought is that for example 5yr TIPS pay about 1.8% plus inflation principal adjustment. That makes the inflation breakeven rate about 2.5%. I myself believe that the avg inflation rate over the next 5yrs will be higher than 2.5%. I plan on holding the TIPS until maturity.

People who are doing the same or similar:

  Is now a good time? Or wait a little longer?

  Build a ladder? Or, I'm considering a 2yr and 5yr combo.

  Last, buy only at auction or also on secondary market?

[yogibearbull]

I have been posting on 5-yr TIPS (to be held to maturity) for a while.

Info ybbpersonalfinance.proboards.com/thread/278/mechanics-buying-selling-yr-tips

TIPS are not TIPS funds, CHART.

[Deleted]

A couple of salient points from YBB's blog:

Individual TIPS generally aren't great for current income because the inflation adjustment isn't paid until they mature. If held in taxable you are still liable for taxes on the inflation adjustment annually.

Considering low bid/ask speads and no brokerage commissions, buying on the secondary market is not an issue, and unlike auctions, you know exactly what you are getting.

I will add, Treasury Direct has been overwhelmed by last minute Series I Bond buyers, which has affected all other transactions. I would only consider the major brokerages, not Treasury Direct for any new issue treasury purchase.

[habsui]

Thank you, this is helpful.

It mostly confirms what I know/learned and what I have been planning.

I believe that this may be a very good point in time to buy TIPS, high inflation probably coming down (slowly), but staying above the breakeven rate for the next few years.