After begging you to open an IRA if you qualify, here is another place one could put that tax deferred cash. I'm picking up some TIPS (Treasury Inflation-Protected Securities) in next week's auction for my IRA.
There are several ways to buy TIPS. Direct from the US Government Treasury Department is another cheap way but involves more paperwork/online work than simply going through a bank or broker.
I like to use my discount broker who doesn't charge me anything for entering a treasury order in an auction. They do charge me a hefty fee and a bid ask spread for trying to buy treasuries in the secondary market.
Here's a description of the inflation indexed bonds I'm buying for my IRA. Right now the bonds look like they'll be priced to yield about 2.2% over the CPI (Consumer Price Index). That works out to around 101.50 or $1,015 per bond.
What are TIPS (Treasury Inflation-Protected Securities)?
My two favorite places to go to learn more about TIPS are
1. The Treasury Department at Treasury Direct.
2. Wikipedia has a great page on TIPS (careful because it does change sometimes)
Give up a little return for simplicity (TIP):
If you find the direct auction too complicated, you can always buy the ETF (Exchange Traded Fund), pay a small 0.15% per annum in fees and buy the iShares indexed to a basked of inflation linked treasuries. The symbol is TIP.
Here's a little description of exactly what I'm buying:
| Description | UNITED STATES TREAS NTS 2.375% 01/15/2017 TIPS |
|---|---|
| Maturity Date | 01/15/2017 |
| Trade Date | 04/12/2007 |
| Settlement Date | 04/16/2007 |
The information contained in this blog entry is from sources that I believe to be correct. However, I make no representations that it is. Check with your financial adviser before purchasing any financial instrument. TIPS can be a little complicated in terms of how they accrue interest and principal so make sure your accountant understands them as well.
Disclosure: I own TIP (my largest exchange traded holding). I am short June 98 strike puts and short June 101 strike calls against a small portion of my position in TIP. I own several maturities of Treasury issued Inflation Protected Securities in my IRA.
See an accountant or other investment professional about what type of retirement account is right for you.
Disclaimer: I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security. Options may be for me but they are are not for everyone. Futures are highly speculative. You can lose more than your initial investment in futures.