If you want to know, in advance, that you’ll have a specific amount of purchasing power available on a specific date in the future, Treasury Inflation-Protected Securities (TIPS) are the tool for the job.
And if you want to know, in advance, that you’ll have a specific amount of purchasing power available each year for many years, a ladder of TIPS is the right tool for the job.
TIPS mutual funds, while they can be a useful tool, generally can’t do either of those jobs. That’s because TIPS mutual funds keep buying new bonds. So if you were to plan to sell your shares of the TIPS mutual fund at any specific date in the future, there’s no way to know what price you’ll get (because you’re essentially selling bonds prior to maturity).
And last month, BlackRock released a lineup of TIPS ETFs that can be used in such a way. They’re called iShares iBonds ETFs. (I hate the name due to the obvious potential for confusion with Treasury I Bonds. But BlackRock didn’t ask me, and the name is of course not the most important point here.)
The idea is that each ETF basically just buys bonds that mature in a specific year — and only that year — and then holds those bonds to maturity. And that’s it. So each ETF can essentially act as a stand-in for one rung of a bond ladder.
It’s a neat idea. I’m happy that they exist. I’d love to see BlackRock extend the lineup out beyond the current 10-year limit. And I’d really be interested to see a fund that actually implements a whole ladder for you.
A Case for BlackRock’s New Defined-Maturity TIPS ETFs from Allan Roth
Other Recommended Reading
How to Outperform from Ben Carlson
LastPass: ‘Horse Gone Barn Bolted’ is Strong Password from Brian Krebs
Vanguard Introduces Retirement Readiness Report from Vanguard
How America Fell in Love with the Power of the Free Market from William Bernstein
Thanks for reading!
What is the Best Age to Claim Social Security?
Read the answers to this question and several other Social Security questions in my latest book:
Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.
You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).