The Fate of Treasuries in the Upcoming Ka-Poomification

[bart]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

...
You earned nothing and paid tax on it.

One of your best ever Fin, very nicely done and matches the basic facts too.

[Finster]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

One of your best ever Fin, very nicely done and matches the basic facts too.

One of your pink hug thingys right back at you, dude! *hug*

[raja]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Finster, I understand what you mean now. Thanks for the explanation.

Even though I did not initially understand the concept as you presented it, in the the example I posted above my calculations included the real tax rate, since I figured in inflation at ever step . . . .

Does this mean that I had real understanding but lacked nominal understanding ;)

[bart]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

. . .

Does this mean that I had real understanding but lacked nominal understanding ;)

Good one... and I repeat:

Has there been any change in your opinions since your original post?

[raja]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Good one... and I repeat:
Has there been any change in your opinions since your original post?

Bart,

I wrote a detailed answer for you, and thought I posted it . . . but I don't see it as I look back through the posts. I often write my posts in Word to use the spell-checker, and I must have neglected to transfer the final draft over to the Forum. Sorry about that . . . .

I have learned some new things, but my opinion of TIPS, gold and other investments is essentially the same.

Given my financial situation and my aversion-to-risk level, I prefer a mix of TIPS, gold, currencies, and a few other minor components. I have given my rationale for TIPS in previous posts. Even though they lose money, they preserve the majority of their value under the greatest array of scenarios. Gold and currencies are good for making money in certain scenarios; balancing the losses from TIPS. (If I only wanted to prepare for one or two scenarios, I probably wouldn’t have any TIPS, as explained in a previous post.)

The only significant change in my thinking is that I now believe that physical gold should be a small part of one’s holdings, set aside for a true “black day” (societal collapse). Otherwise, gold is better kept in paper assets so it can be easily converted to currency at the top end of a bubble.

One question I do have is whether foreign inflation-indexed government bonds have advantages compared to TIPS. I don’t see any at this point, but would welcome more information on the matter. (Finster — notice I didn’t say “inflation-protected”, and I will refrain from that term in the future ;))

[bart]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Bart,

I wrote a detailed answer for you, and thought I posted it . . . but I don't see it as I look back through the posts. I often write my posts in Word to use the spell-checker, and I must have neglected to transfer the final draft over to the Forum. Sorry about that . . . .

I have learned some new things, but my opinion of TIPS, gold and other investments is essentially the same.

Given my financial situation and my aversion-to-risk level, I prefer a mix of TIPS, gold, currencies, and a few other minor components. I have given my rationale for TIPS in previous posts. Even though they lose money, they preserve the majority of their value under the greatest array of scenarios. Gold and currencies are good for making money in certain scenarios; balancing the losses from TIPS. (If I only wanted to prepare for one or two scenarios, I probably wouldn’t have any TIPS, as explained in a previous post.)

The only significant change in my thinking is that I now believe that physical gold should be a small part of one’s holdings, set aside for a true “black day” (societal collapse). Otherwise, gold is better kept in paper assets so it can be easily converted to currency at the top end of a bubble.

One question I do have is whether foreign inflation-indexed government bonds have advantages compared to TIPS. I don’t see any at this point, but would welcome more information on the matter. (Finster — notice I didn’t say “inflation-protected”, and I will refrain from that term in the future ;))

Thanks for the answer raja, and I'm truly glad that something has changed for you. This is a good site with a lot of straight shooters even if some like myself are a bit tinfoil hat and/or aggressively enabled.

As far as your question, my own opinion on foreign bonds is yes - they do offer advantages. Some pay much higher rates and also offer cap gains possibilities, but their primary benefit to me is that they protect better against significant dollar devaluation... which I believe is literally
99% assured.

[raja]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Thanks, Bart. I'll check out the foreign bonds.

[Finster]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Finster, I understand what you mean now. Thanks for the explanation.

Even though I did not initially understand the concept as you presented it, in the the example I posted above my calculations included the real tax rate, since I figured in inflation at ever step . . . .

Right. Really all I did in my example was show how to figure the real tax rate. It's a little involved, but it has to be that way or too many people would figure it out...

Does this mean that I had real understanding but lacked nominal understanding ;)

[Finster]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

. . . .

I have learned some new things, but my opinion of TIPS, gold and other investments is essentially the same.

Given my financial situation and my aversion-to-risk level, I prefer a mix of TIPS, gold, currencies, and a few other minor components. I have given my rationale for TIPS in previous posts. Even though they lose money, they preserve the majority of their value under the greatest array of scenarios. Gold and currencies are good for making money in certain scenarios; balancing the losses from TIPS. (If I only wanted to prepare for one or two scenarios, I probably wouldn’t have any TIPS, as explained in a previous post.)

The only significant change in my thinking is that I now believe that physical gold should be a small part of one’s holdings, set aside for a true “black day” (societal collapse). Otherwise, gold is better kept in paper assets so it can be easily converted to currency at the top end of a bubble.

One question I do have is whether foreign inflation-indexed government bonds have advantages compared to TIPS. I don’t see any at this point, but would welcome more information on the matter. (Finster — notice I didn’t say “inflation-protected”, and I will refrain from that term in the future ;))

Let me be clear that I am not saying that TIPS aren't appropriate for anyone at any time. I don't do them myself, but as long as he understands what they are and what they are not, there's nothing wrong with an investor having some. My point is simply that you can easily get negative real returns. But if during some investment time frame, TIPS gave you -1% return, and everything else was -2% or worse, they'd still be the best investment available for the duration.

I don't think such a hypothetical condition would ever prevail for very long, but the fact that it could occur means there could be merit in including them as part of a diversified portfolio.

[grapejelly]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

Let me be clear that I am not saying that TIPS aren't appropriate for anyone at any time. I don't do them myself, but as long as he understands what they are and what they are not, there's nothing wrong with an investor having some. My point is simply that you can easily get negative real returns. But if during some investment time frame, TIPS gave you -1% return, and everything else was -2% or worse, they'd still be the best investment available for the duration.

I don't think such a hypothetical condition would ever prevail for very long, but the fact that it could occur means there could be merit in including them as part of a diversified portfolio.

TIPS could be useful for someone who was old and needed yield to live on and didn't have to worry about twenty years from now.

But it is amazing how fast purchasing power erodes when you have a negative real rate of return and are taxed on a fictitious (nominal) return.

Contrast this with gold that has gone up from $300 something to almost $700 with no phoney coupons to pay taxes on -- you only pay tax when you sell your gold. And a big advantage of gold is that it is, as I have said, off the grid (if you have possession that is.)

[Jim Nickerson]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

TIPS could be useful for someone who was old and needed yield to live on and didn't have to worry about twenty years from now.

But it is amazing how fast purchasing power erodes when you have a negative real rate of return and are taxed on a fictitious (nominal) return.

Contrast this with gold that has gone up from $300 something to almost $700 with no phoney coupons to pay taxes on -- you only pay tax when you sell your gold. And a big advantage of gold is that it is, as I have said, off the grid (if you have possession that is.)

But isn't gold subject to 28% capital gains tax (that number probably isn't the right one)? And even though purchases may not be reported to the IRS, sales are as I understand it, so at some point, doesn't it come back on the "grid"?

[Finster]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

But isn't gold subject to 28% capital gains tax (that number probably isn't the right one)?

Yeah, that's the right number.

[Finster]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

TIPS could be useful for someone who was old and needed yield to live on and didn't have to worry about twenty years from now.

But it is amazing how fast purchasing power erodes when you have a negative real rate of return and are taxed on a fictitious (nominal) return.

Contrast this with gold that has gone up from $300 something to almost $700 with no phoney coupons to pay taxes on -- you only pay tax when you sell your gold. And a big advantage of gold is that it is, as I have said, off the grid (if you have possession that is.)

If you're willing to do a little work, you can put together your own "TIPS", and probably nicely outperform with only smidgen more risk. There's lots of ways of doing it, but here's a handy all-ETF version:

20% TLT (Long term USTs)
20% SHY (Short term USTs)
20% CEF (Gold & Silver closed-end fund)
10% DVY (Equity Income Fund)
10% IYR (Real Estate Equities Fund)
10% EFA (International Stock Fund)
10% DBC (Commodity Futures Fund)

For a large portfolio, you could easily include others such as IEF, DJP, GSP, EEM, EWC, SPY & VXF for still greater diversification, or vary the proportions depending on how little net volatility you want and your yield objectives. Tweaked properly, you can get better inflation protection than TIPS, and because the investments don't correlate closely, pretty smooth sailing volatility-wise.

...

[raja]

Re: The Fate of Treasuries in the Upcoming Ka-Poomification

If you're willing to do a little work, you can put together your own "TIPS", and probably nicely outperform with only smidgen more risk.

Thanks, Finster.

I will look into this strategy . . . .