Thank you. This was great. Visuals are helpful. I'd like more info on how the taxes affect TIPS. Especially for low income seniors, who don't normally have much in the way of tax write-offs. For instance, I'm low income, and don't make enough, normally, to have to file taxes. If I have a TIPS bond account and I get taxed on it, it's not likely I'll earn enough in the future to benefit from later writing off a loss. Am I missing something? Or are these just not a good idea for someone who doesn't expect to have enough taxed income to benefit from tax write-offs for losses way down the road?
So how do you look at an ETF like LTPZ? I see the price of this ETF has dropped dramatically as interest rates have risen along with inflation. The price seems to be highly correlated with TLT; however, the 12 month yld is up to 9.38% vs TLT at 2.34%. Based on the price and yield movements it seems like these are interest rate sensitive like other treasury bonds but the dividend of the ETF is going to increase with inflation. That being said it seems like the best time to invest in TIPS is when inflation is currently high and the fed is either done raising rates or starting to cut rates. It looks like if you invest in ETFS like this when inflation is rising the benefits of the rising yield will be countered by the drop in price due to rising rates that fed puts in place to counter inflation. Does that sound right based on your understanding?
If TIPS are purchased through the US Treas. Dept, can you withdraw the principal prior to the maturity date? If so, and the economy is in deflation, does that mean that the total amount that you could withdraw would be less than the total amount invested? Or is it the same rule if the bond is held to maturity?
What exactly is meant by "before inflation"? There is always some measure of inflation unless the inflation rate is sitting a 0% which it never ever is so WHAT does "before inflation" mean exactly? Who determines what the nominal "before inflation" rate is? Who determines that?
Why did the yield on the TIPS change to 1% when inflation was 2%?? I thought the TIPS was inflation protected? The traditional bond should have payed a lower yield right? Don't understand.
The yield didn't "change" in this hypothetical example. The 2% was the expected annual inflation rate over the course of the lifetime of the bond. Therefore the yield of the TIPS, is 2% less than the traditional bond, because it is expected to increase in principal by 2% on average, while the traditional principal and interest rate stay static. So this spread between the yield of each is at the time of the sale based on what inflation is expected to be, not an adjustment based on inflation that occurs.
So, if inflation is 2% first year and 3% second year with a interest rate of 1%, we have a (1000 × 1.02) 1020*0.01=10.2 interest first year. And a (1020×1.03) 1050.6×0.01=10.506 interest the second year. Right?
The 1.02 or 1.03 represents the 1 or 2 percent. By adding 1 to the 2% (0.02), it allows us to increase the number by the 2% quickly. For example, if we get a bill for $100 for dinner,and want to tip 20%, we know that $20 is 20% of 100, so we take the $20 and add $100 and we get $120. But we could have just done 100 x 1.2 (which is 1 plus the 0.2 for 20%). Same concept applies for the 2% or 3%..... I may have just made things more confusing, I apologize if I did.
So if inflation became ridiculously high like 8-10%, and you owned a fair bit in TIPS, you would be paying a substantial amount in taxes without getting a lot back? (assuming the TIP still has a long life)
Michael, I think it’s worse than that! Once you’ve inflation adjusted your money I think you’ll find that you’re headed for diminishing returns. And then, insult to injury, the government taxes you as if you made gains.
You can only be either long or short on a single particular stock share at one time you cannot have a long and short position on a single share at the same time HOWEVER you CAN own more than one share and be long on some of the shares and short on others at the same time you just cannot be long and short on on single share at the same time. Either one or the other on a single particular share at once.
How does this work when inflation is largely accumulating? $10.00--100 years ago is worth a lot less now than it was back then. So how does it account for the purchasing power of accumulated inflation?
Would it be smart to invest in tips now? Im looking to invest more with my 401k im new to all of this .ive had my 401k for about a year and a half ive only made $800 idk if thats good or not but what i do know is i want more money lol .
Go watch our rich journey. You have to max out those 401Ks to get compound Interest. You should also buy a book called The Bogleheads' Guide to Investing.
I am 55 years old with very little set aside for retirement at this point. I have always been curious about the stock market and have witnessed some people who played the game right and retired early because they used the stock market. When I ask them, most said that they invested very little to start with, but their portfolio grew. I do have a significant amount of capital that is required to start up but I have no idea what strategies and direction I need to approach to help me make decent returns.
Even with the right technique and assets some investors would still make more than others, as an investor, you should've known that by now, nothing beats experience and that's final, personally I had to reach out to a market analyst for guidance which is how I was able to grow my account close to a million, withdraw my profit right before the correction and now I'm buying again
@@santiagoagustine3749 "My consultant is *Loretta Wilkinson* I found her on a CNBC interview where she was featured and reached out to her afterwards. She has since provide entry and exit points on the securities I focus on.
Am I understanding this correctly??? If inflation hits 52% the “buying power” of my $1,000 dollars would be $480+50%=$720 in nominal terms? If inflation hits 100% my money is worth ZERO dollars? Somebody help me wrap my brain around this!
I don't exactly understand inflation either, let's see if we can figure this out together! 52% inflation (let's say in a year) would mean things cost 52% more based on the CPI. So the things your $1000 could buy in year 1 cost $1520 in year 2. You still have $1000, but it's worth 1000/1520 what it was before (around 66%). So if by "nominal" you mean in 'Year 1 dollars", then your $1000 will be worth ~$660? For inflation of 100%, things cost 100% more, or double what they used to. So your money is worth half of what it used to be, not zero. Does that sound right?
Have you ever invested in TIPS? Would you?
Yes. If we get a cheap dollar
would TIPS be a good strategy to hedge agains potential hyperinflation?
@@plamenyossifov6135 same question
@@plamenyossifov6135 just buy gold
@@plamenyossifov6135 yes they are
Jimmy these old informative videos are gold
Thank you. This was great. Visuals are helpful. I'd like more info on how the taxes affect TIPS. Especially for low income seniors, who don't normally have much in the way of tax write-offs. For instance, I'm low income, and don't make enough, normally, to have to file taxes. If I have a TIPS bond account and I get taxed on it, it's not likely I'll earn enough in the future to benefit from later writing off a loss. Am I missing something? Or are these just not a good idea for someone who doesn't expect to have enough taxed income to benefit from tax write-offs for losses way down the road?
You should talk with your tax advisor due to your low-income tips might still be worth it.
Jimmy this is an excellent educational video. Please do more like them. Thanks
Could you explain, either in a comment or video, how a TIPS ETF works, since it holds multiple TIPS with varying maturities...?
Very well, clearly, approachably explained.
Thanks.
The best explanation. Thank you!
How does anyone comprehend this?
Thank you very much !
Do you have to report the phantom income yearly on your tax return?
So how do you look at an ETF like LTPZ? I see the price of this ETF has dropped dramatically as interest rates have risen along with inflation. The price seems to be highly correlated with TLT; however, the 12 month yld is up to 9.38% vs TLT at 2.34%.
Based on the price and yield movements it seems like these are interest rate sensitive like other treasury bonds but the dividend of the ETF is going to increase with inflation. That being said it seems like the best time to invest in TIPS is when inflation is currently high and the fed is either done raising rates or starting to cut rates. It looks like if you invest in ETFS like this when inflation is rising the benefits of the rising yield will be countered by the drop in price due to rising rates that fed puts in place to counter inflation. Does that sound right based on your understanding?
If TIPS are purchased through the US Treas. Dept, can you withdraw the principal prior to the maturity date? If so, and the economy is in deflation, does that mean that the total amount that you could withdraw would be less than the total amount invested? Or is it the same rule if the bond is held to maturity?
I have never invested in TIPS, but now I would. Good video. Interesting option I never knew much about!
I'm glad you liked it!
Would you invest now knowing where everything is heading?
is there a good time to sell TIPS before they mature?
Going to wait a little bit until revenues and job numbers come out, then throw my money in VOO and call it a day lol.
What is a Voo?
VOO is the vanguard s&p 500 etf
What exactly is meant by "before inflation"?
There is always some measure of inflation unless the inflation rate is sitting a 0% which it never ever is so WHAT does "before inflation" mean exactly?
Who determines what the nominal "before inflation" rate is?
Who determines that?
Do Tips include bonds that are not triple A?
Why did the yield on the TIPS change to 1% when inflation was 2%?? I thought the TIPS was inflation protected? The traditional bond should have payed a lower yield right? Don't understand.
The yield didn't "change" in this hypothetical example. The 2% was the expected annual inflation rate over the course of the lifetime of the bond. Therefore the yield of the TIPS, is 2% less than the traditional bond, because it is expected to increase in principal by 2% on average, while the traditional principal and interest rate stay static. So this spread between the yield of each is at the time of the sale based on what inflation is expected to be, not an adjustment based on inflation that occurs.
@@matthart5817 thanks!
This is a fantastic video. Thank you!
Solid and explained for dummies like me lol
Great video! Well done! Thanks!
Glad you liked it!
So, if inflation is 2% first year and 3% second year with a interest rate of 1%, we have a (1000 × 1.02) 1020*0.01=10.2 interest first year.
And a (1020×1.03) 1050.6×0.01=10.506 interest the second year.
Right?
Yea, that sounds right
how do you get 1.02 or 1.03?
The 1.02 or 1.03 represents the 1 or 2 percent. By adding 1 to the 2% (0.02), it allows us to increase the number by the 2% quickly. For example, if we get a bill for $100 for dinner,and want to tip 20%, we know that $20 is 20% of 100, so we take the $20 and add $100 and we get $120. But we could have just done 100 x 1.2 (which is 1 plus the 0.2 for 20%). Same concept applies for the 2% or 3%..... I may have just made things more confusing, I apologize if I did.
@@LearntoInvest you did
Thank you so much to keep up with.
Well this was before its time. A Gen Z man has to be his own everything. Lets keep learning.
So if inflation became ridiculously high like 8-10%, and you owned a fair bit in TIPS, you would be paying a substantial amount in taxes without getting a lot back? (assuming the TIP still has a long life)
Michael, I think it’s worse than that! Once you’ve inflation adjusted your money I think you’ll find that you’re headed for diminishing returns. And then, insult to injury, the government taxes you as if you made gains.
If u own them in an IRA they aren’t taxed till withdrawal like regular income or not at all if it’s Roth
Great video.
What do you think of TIPS ETF,s specifically schwabs schp?
I was thinking of buying it too, but the taxes have scared me off
Is it just in this case that the breakeven rate is 2% ?
What happens if Hyper inflation hits?
You will barely buy food
Can you short stock that you own?
You can only be either long or short on a single particular stock share at one time you cannot have a long and short position on a single share at the same time HOWEVER you CAN own more than one share and be long on some of the shares and short on others at the same time you just cannot be long and short on on single share at the same time.
Either one or the other on a single particular share at once.
How does this work when inflation is largely accumulating?
$10.00--100 years ago is worth a lot less now than it was back then.
So how does it account for the purchasing power of accumulated inflation?
Would it be smart to invest in tips now? Im looking to invest more with my 401k im new to all of this .ive had my 401k for about a year and a half ive only made $800 idk if thats good or not but what i do know is i want more money lol .
Go watch our rich journey. You have to max out those 401Ks to get compound Interest. You should also buy a book called The Bogleheads' Guide to Investing.
dude awesome thanks!
Thanks for the support!
I am 55 years old with very little set aside for retirement at this point. I have always been curious about the stock market and have witnessed some people who played the game right and retired early because they used the stock market. When I ask them, most said that they invested very little to start with, but their portfolio grew. I do have a significant amount of capital that is required to start up but I have no idea what strategies and direction I need to approach to help me make decent returns.
Buy index funds if you wanna be safe, though you are probably be better off just going to Vanguard or something for that
Even with the right technique and assets some investors would still make more than others, as an investor, you should've known that by now, nothing beats experience and that's final, personally I had to reach out to a market analyst for guidance which is how I was able to grow my account close to a million, withdraw my profit right before the correction and now I'm buying again
@@jaluriaja6294who is your financial coach, do you mind hooking me up?
@@santiagoagustine3749 "My consultant is *Loretta Wilkinson* I found her on a CNBC interview where she was featured and reached out to her afterwards. She has since provide entry and exit points on the securities I focus on.
@@santiagoagustine3749 You can look her up online if you care supervision. I basically follow her trade pattern and haven't regretted doing so"
Why do I feel like this could have been explaiend ALOT better?
3:06
He said ¨extraordinarily unlikely”
Am I understanding this correctly???
If inflation hits 52% the “buying power” of my $1,000 dollars would be $480+50%=$720 in nominal terms?
If inflation hits 100% my money is worth ZERO dollars?
Somebody help me wrap my brain around this!
I don't exactly understand inflation either, let's see if we can figure this out together!
52% inflation (let's say in a year) would mean things cost 52% more based on the CPI. So the things your $1000 could buy in year 1 cost $1520 in year 2. You still have $1000, but it's worth 1000/1520 what it was before (around 66%). So if by "nominal" you mean in 'Year 1 dollars", then your $1000 will be worth ~$660?
For inflation of 100%, things cost 100% more, or double what they used to. So your money is worth half of what it used to be, not zero. Does that sound right?
@@matthart5817
Yes, I Believe you are correct.
Thank you for that!
흐흐 한국사람은 없네요,경남사천출신, 용남고졸.농사짓는,농부.빈농자식으로,부산거주, 주유원인데 공부잘하고 갑니다(22년1월20일)
Tax on Inflation Adjustment 😳? Total rip off😂
I want to invest in stock market
Akshay Oturkar Ok
Ok