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Presentation on TIPS

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Mar 2, 2007 3:46 am

I’m going to be doing an invited presentation on the virtues of TIPS. 

Any thoughts on what points or ideas will resonate with a HNW crowd
with a wide range of sophistications. Alot of these people already have
advisors, so I’m trying to come up with some fresh points.

I know TIPS are uncommon in most bond ladders from the difficulty of
buying them in round lots and lack of mark-up on government bonds.

Mostly I’m going to talk about the sure thing growing cashflow aspect of TIPS.

Mar 2, 2007 6:39 am

How about, non correlated asset class, not too unlike gold, that unlike gold, pays a dividend and has an inflation kicker. I don’t think these people care that you prove how smart or clever you may be. I think you know what to do.

Mar 2, 2007 2:16 pm

Do many of you use TIPS regularly?  I’d be curious the virtues as well since I’ve yet to use them, but they sound as if they could be an excellent tool. 

Mar 2, 2007 8:12 pm

[quote=gad12]Do many of you use TIPS regularly?  I’d be curious
the virtues as well since I’ve yet to use them, but they sound as if
they could be an excellent tool.  [/quote]

All my portfolio’s are at least 10% TIPS, and many are more.

TIPS are the only sure thing growing cash flow investment. So they complement allocations to dividend stocks and REITs.

Mar 3, 2007 2:00 am

Do you use TIPS funds or the actual bonds?

Mar 4, 2007 8:09 pm

AllREIT, how do you buy your TIPS? Funds? If so, which one’s do you use?

My opinion, don’t get too creative. You seem to know what you are

talking about, you believe in it, and you give very simple explanations on

them as it relates to a well diversified portfolio. Just tell your story…

Mar 5, 2007 10:41 am

TIPS really should be owned in a fund, to prevent the problems of
phantom income from TIPS accretion. I.e the upward adjustment of the
TIPS par value is a taxable event even though you don’t get cash flow.

My understanding from talking to one broker, was that most B/D bond
desks don’t keep TIPS in inventory and so its hard to buy them in small
lots? Is this true?

For TIPS funds, I use vanguards TIPS fund. I think Fidelity (45bp) or
AmCen (50bp) also have nice tips funds. PIMCO charges way too much
(90bp) for their version. The TIP ETF tends to have chaotic dividends
which annoys clients. There is also a TIPS CEF (WIW) which is pretty
big (800M or so).

Right now I’m working on my Opener (I.e some good examples of
inflation) as well as trying to make the connection between clients
personal situation and an investment in TIPS.

I’m trying also to think about how to explain the usefull ness of tips
(i.e ultra diversification vs both stocks/bonds) and downside (TIPS
have very high durration b/c of low real interest rate, CPI volatility
affects accretions, Greenspan-Bernanke disinflation, TIPS not very high yielding )

Mar 5, 2007 2:52 pm

Good info Reit.

Thanks from a younger advisor.

Mar 5, 2007 3:37 pm


Good info Reit.

Thanks from a younger advisor.


The main bad secnario for tips is sort of unfolding right now: Tightening credit + slowing economic activity + orderly decline in commodities prices.

Gad, it would be a major favor to me, if you could read

4Q2006 Report erly%20Review%20Q42006.pdf

FY2006 Report nual%20Report.pdf

And tell me what you think/questions you might have? I think Western Asset (LM) does a good job covering all the bases.

One thing that makes understanding TIPS for retail investors is understanding the idea of real return, and "deflating" nominal returns into real returns.