Non-financial boards have been closed but will continue to be accessible in read-only form. If you're disappointed, we understand. Thank you for being an active participant in this community. We have more community features in development that we look forward to sharing soon.
D40 wrote:No, the term DEFLATIONARY was not a typo. My point was that TIPS are required to pay at least face value at maturity, as I understand it, so if you hold till maturity there is no risk of getting less principal back due to DEFLATION. I tend to agree with you that inflation is probably NOT right around the corner, and rates could stay this low for a long time. But it just seems that at least a portion of long term fixed income fund would be best positioned in this environment in TIPS.I was hoping that it was a typo. That it's not means you don't understand the concept. In fact, you are looking at it backwards.If you are to receive $100 in the future in a DEFLATIONARY economy, that future $100 will buy MORE goods and services in the future (future prices of goods and services will have gone DOWN). The value of your $100 will have gone UP.If you are to receive $100 in the future in a INFLATIONARY economy, that future $100 will buy LESS goods and services (future prices of goods and services will have gone UP). The value of your $100 will have gone DOWN.If you are to receive $100 in the FUTURE and interest rates go UP, the PRESENT value of that future $100 will go DOWN. If you are to receive $100 in the FUTURE and interest rates go DOWN, the PRESENT value of that future $100 will go UP.The longer the term of maturity of that $100, the more sensitive its PRESENT value is to changes in interest rates.Do you get it?
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |