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Author: donmanning Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76384  
Subject: Short-term TIPS Date: 4/4/2013 7:40 PM
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I'm retired (age 70) and am very concerned about liquidity and cash flow for the coming years. I have a money market fund with enough cash to cover the next 3 years. For years 4-6 I own regular TIPS (VIPSX). I am getting very concerned that rising interest rates will cause the regular TIPS to lose value, and am considering selling VIPSX and buying VITP.

With the liquidity needs I've stated above, I'd appreciate comments on the pros and cons of owning short-term TIPS (VTIP) versus regular TIPS (VIPSX), versus a money market fund or CD ladder. Does it seem that I have too much cash in the money market fund?

Thanks in advance for what I know will be foolish advice.

donfool
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Author: JLC Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71722 of 76384
Subject: Re: Short-term TIPS Date: 4/5/2013 9:19 AM
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Personally when I get to your point, I'll keep my cash in a money market fund.

TIPS sound great but two things against them: One, the governmnet defines what the inflation rate is and I'm sure you've noticed that the real world inflation doesn't match the government quote (the gov't uses housing prices as a major component and with housing falling the past few year, inflation is zero). Also, inflation is very individualistic in that what I want/need is different from what you want/need and what we pay for that is very different. And Two, if you have to sell before maturity, you could lose capital.

With a money market fund, you at least get current rates and can get your money at any time.

JLC

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71795 of 76384
Subject: Re: Short-term TIPS Date: 4/8/2013 9:38 AM
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You don't mention your SS income. Are you getting that?

A lot depends on your expenses, and how much you may be able to adjust those, and how knowledgeable you are about managing your money. It's never too late to learn.

I'm over 70 and have managed my own IRA for more than 15 years. I don't have anything in CD's or MM accounts, or even mutual funds for that matter, and do fairly well on my own.

But that's me.

Good luck.

Vermonter

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Author: donmanning Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71958 of 76384
Subject: Re: Short-term TIPS Date: 4/12/2013 1:19 AM
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Thanks to Vermonter and JLC for your comments.

JLC, wouldn't it be better to be getting some yield better than the MM, which is essentially zero?

Vermonter, where do you hold your funds for near-term liquidity. Sounds like a bank account?

Our income from SS and pensions is about $75,000 per year, on which we could live if absolutely necessary. However, we do a lot of traveling, family support, etc. for which we need liquid assets to draw from covering the next 3-5 years. My question is where I should keep the short-term funds needed for liquidity. Would Vanguard short-term TIPS be better than Vanguard regular TIPS, given the probability that interest rates will rise in the next year or two. Or is it just safer to go with a CD ladder and MM fund for money that will be needed over the next five years.

Donfool

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Author: gdett2 Big gold star, 5000 posts Old School Fool Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71962 of 76384
Subject: Re: Short-term TIPS Date: 4/12/2013 3:22 AM
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donmanning,

I keep mine in passbook savings where I can do a transfer on the web or over the phone quite easily. I am not concerned with it not earning money. I would be concerned having it in a bond fund since NAV goes up and down and you may lose liquidity for trade settlement.

You can create a ladder(CD/bond) or use a cash and near-cash method. I use the latter. I keep 6 to 12+ months in passbook. I have an old IRA insurance annuity that pays very decent interest with 5+ years in it. It would take 3 days to get cash transferred from this account. I have not used it since retiring 8 years ago. I have refiled cash from trimming stock and dividends.

If I didn't have the old IRA, I would look at a couple TIPS, short-term and/or intermediate-term bond funds/ETFs to put the longer term money into. If you have it spread across a couple funds with different investing horizons, you can pick and choose which one to grab money from if needed. You'll have a better chance of not selling something low.

There could be price pressure on longer term bond funds. The shorter term funds will change-out quicker and hopefully not get hit as bad.

Gene

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71965 of 76384
Subject: Re: Short-term TIPS Date: 4/12/2013 10:01 AM
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Donfool:

You're blessed to have that income, which is not quite double ours. However, I have no idea what your costs are for family, etc.

I have an IRA with Fidelity, so I can buy and sell for small commissions when I choose to, but I manage my own equities within that, and I also enjoy dividends from some of what is in there. My FDRXX fund in there is like a MM, in that I can withdraw at will from that, overnight, and have it deposited in my checking account by morning. (When I sell any stocks, of course, there is a 3-day waiting period before it moves to FDRXX.) At our income level, and both being over 70, we pay no income taxes to state or federal, so I also pay nothing on withdrawals from my IRA, either.

We all do what we can!

Vermonter

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Author: b2annie Two stars, 250 posts Old School Fool SC1 Red SN Olympia3 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71976 of 76384
Subject: Re: Short-term TIPS Date: 4/12/2013 11:44 PM
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Hi All.
I have some funds in Fidelity's Contrafund. I'm a bit disappointed with it and am wondering if anyone had any suggestions within the Fidelity Family. It is in a 403b, so I need to stay with Fidelity.I look forward to your comments and suggestions.
anna

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