Monday, October 15, 2012

The Sarcasm Report v.169

October 15, 2012
Vanguard to Unveil New TIPS ETF on Tuesday

VTIP will track the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, which includes TIPS issued by the U.S. Treasury with maturities of less than five years.

There are six things that really make this new fund attractive to me.

1. There aren't enough TIPS funds! There can never be enough! Stick with what works! Mwuhahaha!

2. It's a pure play on the economy only stagnating for the next 5 years and then miraculously improving. Slam dunk, that one!

3. The fund is concentrating on the negative real yields that only the short end of the treasury curve can truly offer. Take the 5-year TIPS. It yields -1.6%. Anything less than 5 years will yield even less! Lock it in!

4. At a real yield near -2%, and assuming that Bernanke meets his 2% inflation target, the fund is every bit as good as cash! But get this. You can let someone else manage that money for you! No brainer!

5. If real interest rates do rise, the bond fund's value will drop. What could cause it? Oh, I don't know. Perhaps there could be another deflationary recession? What are the odds? Everyone knows it can't happen!

6. The expense ratio is only 0.1%. That's almost as good as the 0.0% expense ratio that you'd get by buying 5-year TIPS directly from the government and holding to maturity.

Win, win, win, win, win, win!

I own TIPS. I'm clearly not above heckling my own investment though, especially a short-term TIPS fund that's almost guaranteed to lose purchasing power. This is the closest thing to investment advice that I would ever offer on this blog. Brace for it. Here it comes.

If you absolutely think that you must buy this fund, then at least look at I-Bonds first. Seriously. What's the harm in looking?


Mr Slippery said...

You missed heckle 7, a big one. Since it is an ETF, you can trade it multiple times a day like a stock! Follow the intraday stock patterns and make a killing on the price swings, then sit back and collect your negative 2% interest. BTW, each round trip will cost you about $14.25.

People with a 401k or IRA might not be able to buy I-bonds in their retirement accounts. I can't. I have to buy directly, outside my retirement accounts.

dearieme said...

We've just invested in an account that tracks 3% p.a. above the Bank of England base rate (currently 0.5% p.a.) for three years. Tax free!!

Stagflationary Mark said...

Mr Slippery,

I didn't just miss a big one; I missed the biggest one!

Shame on me.

We should factor in that the trading tools are generally free though, whether they be tea leaves, astrological horoscopes, broker supplied tools, and/or gut instincts of intraday micro-fluctuations in real yields!

It would surely be the road to vast riches! Just need to be smarter than Goldman Sachs on nearly every trade (to compensate for the trading fees)! That's all!

How hard can that be?

Stagflationary Mark said...


That sounds a lot better than a swift kick to the teeth (or potentially even the short-term TIPS fund within this post).