No. of Recommendations: 0
Hello,

I think I would like to put $25,000 into a 4.5-5 year TIPS security within an existing self managed IRA. I have been trading stocks for quite a few years on my own using the discount broker's (TD Waterhouse) web site. I was not clear how to buy a bond through the brokerage.

I tried calling Treasury Direct after looking at their web site. The customer service rep was not helpful, but is mailing me a package to set up a new account. I think I could handle a direct purchase fairly easily outside my IRA (we have a smidgeon of I-Bonds for a while back) by getting the cusip, etc.

One post on this board suggested bagging the direct purchase approach and getting Vaguard's TIPS fund (VIPSX) which appears to now be trading at its 52 week high and yielding 2.8% + inflation as defined. I know I can do this within the IRA but the 0.25% fee and ability of Vanguard to change maturity seem negatives.

It appears clear to me we are at or near a low point for interest rate. I feel confident they will rise over time. Buying a Treasury security directly and holding to maturity is intended to minimize the risk of capital loss after rates have risen.

Help would be welcome.

John
Print the post Back To Top
No. of Recommendations: 3
I have been trading stocks for quite a few years on my own using the discount broker's (TD Waterhouse) web site. I was not clear how to buy a bond through the brokerage.

To trade bonds online with TD Waterhouse, log in, click on "Trading", then "Bonds". To get quotes on TIPS, click on "Treasury" under "Search Offerings", then click the checkbox labeled "Indexed (TIPS)", and click on "Find Bonds". This should get you a list of the TIPS available. You can then just click on "Buy" next to the bond you choose.

Making your order by telephone might also be an idea, if doing it online is confusing.

I tried calling Treasury Direct after looking at their web site. The customer service rep was not helpful, but is mailing me a package to set up a new account. I think I could handle a direct purchase fairly easily outside my IRA (we have a smidgeon of I-Bonds for a while back) by getting the cusip, etc.

Unfortunately, you cannot use Treasury Direct yourself to set up an IRA. IRAs must be held in the name of a trustee (in your case, TD Waterhouse is your trustee), and the trustee must open the account with Treasury Direct, if they are inclined to do so (they likely are not, being in the bond business themselves). You probably do not want to buy TIPS outside your IRA, due to the unfavorable taxation. Finally, Treasury Direct allows you to buy bonds only at auction, not on the open market. The Treasury only issues 10-year TIPS at auction, with 5-year TIPS only available on the open market (really just 10-year issues that are 5 years old). So, you probably cannot get the bonds you want from Treasury Direct.

You may find it easier to pick up ordinary Treasuries, instead of TIPS, especially considering your short investment timeframe. 5-year T-Notes are currently yielding 4.11%, compared to 5-year TIPS at 2.45% (real).
Print the post Back To Top
No. of Recommendations: 0
foobar,

Thank you. It is starting to look like a conventional Treasury offering or other bond might be better at this time. I need to do more research. I have inherited an IRA under which mandatory distributions must be taken beginning with about $2,700 by 12/31/03 if the IRA's value is stable through 12/31/02. We were thinking of fixed income instruments capable of generating the bulk of this $2,700 annually and locking in a real return with TIPS but the numbers do not work well currently.

John
Print the post Back To Top
Advertisement