There are some differences between individual TIPS and the iShare iBonds ETFs. Here's a few:
1. The ETFs mature in October of a particular year whereas there are multiple issuances of TIPS that mature in several (4? 6?) months of a year. Also, when an April TIPS matures, the ETF of course gets its principal back but what does it do with that principal until October? Here's something from the prospectus:
Anyway, if you are persnickety about exactly when your TIPS mature and you have money available for spending, TIPS have more flexibility.
2. The ETFs have an expense ratio that you can avoid if you buy individual TIPS. But perhaps iShares can buy the underlying TIPS for the ETFs cheaper than you can, perhaps offsetting some of that expense ratio. Just speculation on my part.
3. With the ETFs, you can reinvest your dividend distributions back into the fund. Pretty much all brokerages let you set up automatic dividend reinvestment. With TIPS coupon distributions, you have to figure (1) what to do with the coupons (one option is to accumulate enough coupons until you can buy another bond, on the order of $1000); and (2) take action to do it, like figuring which rung and then placing a trade. There's some simplicity you get with the ETF.
1. The ETFs mature in October of a particular year whereas there are multiple issuances of TIPS that mature in several (4? 6?) months of a year. Also, when an April TIPS matures, the ETF of course gets its principal back but what does it do with that principal until October? Here's something from the prospectus:
Implicit is that some of your investment is not inflation-indexed for the full term. But then again if you have a single TIPS to cover a year's worth of spending, presumably you hold that year's worth of spending in a nominal-return account too.Declining Yield Risk. During the six months prior to the Fund’s planned termination
date, the bonds held by the Fund will mature and the Fund’s portfolio will convert to
cash or cash equivalents. During these final six months, the Fund’s yield will generally
tend to move toward prevailing money market rates, and may be lower than the yields
of the bonds previously held by the Fund and lower than prevailing yields for bonds in
the market.
Anyway, if you are persnickety about exactly when your TIPS mature and you have money available for spending, TIPS have more flexibility.
2. The ETFs have an expense ratio that you can avoid if you buy individual TIPS. But perhaps iShares can buy the underlying TIPS for the ETFs cheaper than you can, perhaps offsetting some of that expense ratio. Just speculation on my part.
3. With the ETFs, you can reinvest your dividend distributions back into the fund. Pretty much all brokerages let you set up automatic dividend reinvestment. With TIPS coupon distributions, you have to figure (1) what to do with the coupons (one option is to accumulate enough coupons until you can buy another bond, on the order of $1000); and (2) take action to do it, like figuring which rung and then placing a trade. There's some simplicity you get with the ETF.
Statistics: Posted by sycamore — Fri Mar 01, 2024 8:37 pm