The advantage of a TIPS fund is that if held in taxable account, owning the fund instead of individual bonds removes all of the complicated year-to-year tax accounting issues as the bonds re-price.
The disadvantage of owning the TIPS fund instead of actual bonds is that it is a bond fund, and there are numerous disadvantages to bond funds including the mark-to-market pricing of underlying securities in the day to day pricing of the shares of the fund, which includes volatility and potential for losses, magnified by the fact that the fund never matures like an actual bond does (which makes the iShares TIPS ETFs more attractive, they do mature.)
Held in a tax-deferred or tax-free account, the TIPS fund eliminates nothing because the tax accounting issues are non-existent; but the fund still leaves one with all the disadvantages.
In other words, either way, taxable or not, the fund is less appealing than owning the actual TIPS bonds.
The disadvantage of owning the TIPS fund instead of actual bonds is that it is a bond fund, and there are numerous disadvantages to bond funds including the mark-to-market pricing of underlying securities in the day to day pricing of the shares of the fund, which includes volatility and potential for losses, magnified by the fact that the fund never matures like an actual bond does (which makes the iShares TIPS ETFs more attractive, they do mature.)
Held in a tax-deferred or tax-free account, the TIPS fund eliminates nothing because the tax accounting issues are non-existent; but the fund still leaves one with all the disadvantages.
In other words, either way, taxable or not, the fund is less appealing than owning the actual TIPS bonds.
Statistics: Posted by Box of Rain — Mon Apr 29, 2024 5:55 am — Replies 10 — Views 714
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