Dear Mr. Berko: I have a $40,000 certificate of deposit coming due next month, and my wife wants to put the money in Treasury bonds that guarantee 3.3 percent. Our brokerage accounts are about 35 percent bonds, 50 percent stocks and 15 percent cash. The bank won’t buy them for us, so I asked our local broker, who wants to charge us $100 commission — though he would prefer that we put this money in Treasury inflation-protected securities instead of in fixed-income Treasury securities. I told him that the $100 commission was too high, and he got a little insulted but nicely told me that I could buy them directly through TreasuryDirect and avoid the costs. I tried, and so did my wife, but we can’t seem to negotiate the protocols. If I managed my dental practice as the government manages this site, I’d be flat broke in no time. We are not comfortable asking the broker to help us understand the site and hope you might have some suggestions for us.
CS, Columbus, Ohio
Dear CS: Tips, I’ve often told my children and grandchildren, is an acronym I’ve used for over 40 years that describes gratuities given to waiters. It means “to insure prompt service.” But the U.S. government, in its frequent moments of clarity, chose to kidnap those four letters and gave them a new meaning: Treasury inflation-protected securities. In the past few years, even though their principal at maturity is 100 percent assured by Washington, they’ve been among the worst-performing bonds in the market. The sovereign bonds of Spain, Greece and Turkey have done better than the TIPS index, which last year posted an 8.6 percent loss.
It would be un-American if I advised you not to purchase TIPS, but I will advise you not to use the TreasuryDirect website. Its home page has 35 laughing faces, and I couldn’t figure out why they’re laughing. And after at least 11 minutes of mousing and clicking, I couldn’t figure out how to purchase TIPS on that government site, either. I suspect that the stupids who designed HealthCare.gov are the same stupids who designed this website. I think your time is worth more than $100, so stop bending over dollars to pick up dimes. Pay the $100 fee to your broker, because the agita you’ll get trying to work that website will bean you bonkers.
Though I don’t care a hoot for TIPS, your broker may be giving you good advice. Interest rates and inflation are going to rise, but I can’t tell you “when.” (Though when they do, I’m not comfortable that the lady at the Federal Reserve has the skill to moderate their rise.) Most folks seem to think that on some Wednesday or Thursday morning, they’ll wake up to discover that interest rates are 2 percent higher than they were the day before. Well, it doesn’t work that way, Clyde. Folks who gain weight don’t suddenly waken and find themselves 33 pounds heavier than they were the night before. Interest rates have been increasing for months, and historically, when interest rates rise, the rise is slow and so gradual that you don’t notice the change until it’s significant to you — and then it’s too late. Still, 30-year TIPS are preferable to 30-year Treasury bonds, though either purchase raises idiocy to a new level if one believes that interest rates are headed prominently higher in the coming few years. Higher rates will cause both TIPS and Treasury bonds to decline in market value, so why buy only bonds?
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