TIPS ETF (TIP)

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B24's picture
B24
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What are people's thoughts on TIPS right now?  A lot of my clients want ultra-safe investments, but can't accept 0.5% in MMKT or 2-3% in CD's.  Treasuries are a ticking time bomb, and if inflation out-duals deflation in the next 6 months, TIPS could reap a windfall.  Ultimately, TIPS should do well, it's just a matter of when that Washington Printing Press kicks into over-drive and puts a gallon of milk at $8.75.
I am partial to TIP (Barclays).
I welcome other perspectives.

Hank Moody's picture
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B24 wrote:What are people's thoughts on TIPS right now?  A lot of my clients want ultra-safe investments, but can't accept 0.5% in MMKT or 2-3% in CD's.  Treasuries are a ticking time bomb, and if inflation out-duals deflation in the next 6 months, TIPS could reap a windfall.  Ultimately, TIPS should do well, it's just a matter of when that Washington Printing Press kicks into over-drive and puts a gallon of milk at $8.75.
I am partial to TIP (Barclays).
I welcome other perspectives.Fixed or indexed annuities.

bspears's picture
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Listen to Hank...

snaggletooth's picture
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Hank Moody wrote: Fixed or indexed annuities.
 
It's amazing when someone on here speaks the truth.

LuvIndy's picture
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Hank Moody wrote: B24 wrote:What are people's thoughts on TIPS right now?  A lot of my clients want ultra-safe investments, but can't accept 0.5% in MMKT or 2-3% in CD's.  Treasuries are a ticking time bomb, and if inflation out-duals deflation in the next 6 months, TIPS could reap a windfall.  Ultimately, TIPS should do well, it's just a matter of when that Washington Printing Press kicks into over-drive and puts a gallon of milk at $8.75.
I am partial to TIP (Barclays).
I welcome other perspectives.Fixed or indexed annuities.
 
Please explain why you answered the question this way. I'm not following the logic. I don't use Indexed annuities, so I'm wanting to know if I'm missing something here. I don't see why fixed annuities beat TIPS (based on the question asked).
 

snaggletooth's picture
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LuvIndy wrote: 
I don't use Indexed annuities, so I'm wanting to know if I'm missing something here.  
 
Yes, I believe you are.

bspears's picture
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Because we all think inflation will happen is a good reason to think it WON'T.  All my new money is looking for some type of guarantee...I can't guarantee inflation...thats what you're doing if you sell TIPS..

snaggletooth's picture
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bspears wrote:Because we all think inflation will happen is a good reason to think it WON'T.  All my new money is looking for some type of guarantee...I can't guarantee inflation...thats what you're doing if you sell TIPS..
 
Dude, this might be the coolest thing you've said on this forum, ever.  Especially the middle sentence.

bspears's picture
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Thanks Snags

Hank Moody's picture
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LuvIndy wrote:Hank Moody wrote: B24 wrote:What are people's thoughts on TIPS right now?  A lot of my clients want ultra-safe investments, but can't accept 0.5% in MMKT or 2-3% in CD's.  Treasuries are a ticking time bomb, and if inflation out-duals deflation in the next 6 months, TIPS could reap a windfall.  Ultimately, TIPS should do well, it's just a matter of when that Washington Printing Press kicks into over-drive and puts a gallon of milk at $8.75.
I am partial to TIP (Barclays).
I welcome other perspectives.Fixed or indexed annuities.   
Please explain why you answered the question this way. I'm not following the logic. I don't use Indexed annuities, so I'm wanting to know if I'm missing something here. I don't see why fixed annuities beat TIPS (based on the question asked).
 Fixed and Indexed Annuities only go up in value, never down.

B24's picture
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I hear what you guys are saying.  I do use fixed annuities with many of my portfolios.  However, there is also a contingent of clients that either (a) won't buy annuities, or (b) I am just looking for a place to park safe(r) money for a year or two.  I don't disagree with the annuity argument, but am specifically asking about TIPS in general, since I already use FA's.  The other problem is that FA's are paying crap right now on short money.  So it appears that TIPS are a better alternative for short dollars that don't need to be spent.  For my clients that are in the withdrawal phase, I use fixed immediate's for their 3-7 year withdrawals.
Spears, what you are saying is one of my fears - that inflation won't happen as we think it will.  If this was a "typical" market, and Treasuries were at 2.5%, and cash was coming out of Washington like confetti, then this would be a no-brainer.  But we are in a weird economic environment, hence my pause with TIPS.
 
Thanks.

B24's picture
B24
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Oh, and as you probably know, I can't sell indexed annuities.  However, a lot of the current VA income riders out there are really indexed annuities in disguise.

snaggletooth's picture
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B24 wrote:
Oh, and as you probably know, I can't sell indexed annuities. 

That sucks.  Another negative for Bob Jones' clients.

B24's picture
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Bob Jones?
 
I guess it sucks, but I was never a big proponant of EIA's.  Sicne I don't know ebough about them, how similar are they to some of the newer VA's with Income riders? 

snaggletooth's picture
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B24 wrote:Bob Jones?
 
Inside joke.
 
I guess it sucks, but I was never a big proponant of EIA's.  Sicne I don't know ebough about them, how similar are they to some of the newer VA's with Income riders? 
 
Neither was I.  But it's amazing what you learn when you do your own research instead of believing the company mantra.  Talking about myself of course.
 
The main difference between FIA and VA's is that one has market risk, the other does not.  One has fees, the other does not.  One has a maximum potential gain, the other does not.  One can go down in value, the other can not. 

now_indy's picture
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Don't forget that with a VA, every one one of the companies in the subaccounts would have to go belly up to lose 100% of your client's cash. In the EIA, only one company (the issuing company) has to go belly up to lose 100% of your client's money.

bspears's picture
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OR just lose 30-50% of your clients value in the last 18 months and still be in business...

snaggletooth's picture
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bspears wrote:OR just lose 30-50% of your clients value in the last 18 months and still be in business...
 
Man, Spears, you are on fire today.  What the hell happened to you?

Hank Moody's picture
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now_indy wrote:Don't forget that with a VA, every one one of the companies in the subaccounts would have to go belly up to lose 100% of your client's cash. In the EIA, only one company (the issuing company) has to go belly up to lose 100% of your client's money.Stupid.

B24's picture
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snaggletooth wrote:B24 wrote:Bob Jones?
 
Inside joke.
 
I guess it sucks, but I was never a big proponant of EIA's.  Sicne I don't know ebough about them, how similar are they to some of the newer VA's with Income riders? 
 
Neither was I.  But it's amazing what you learn when you do your own research instead of believing the company mantra.  Talking about myself of course.
 
The main difference between FIA and VA's is that one has market risk, the other does not.  One has fees, the other does not.  One has a maximum potential gain, the other does not.  One can go down in value, the other can not. 
 
No, I know EIA's have some value, but since I can't sell them, I have not taken the time to research them.  I don't think they are bad products, I think they get a bad rap because of the number of reps that mis-represent them when they are sold.  I have had several clients that own them, and had no idea how the surrender charges worked, many thought their returns equaled the market returns with a floor, etc.  I am NOT saying all EIA sellers mis-represent them.  I am just saying that the products could stand on their own, even when fully explained.  There's just some slimy salesmen out there, and with all the nuances within ALL annuities, it just gives the "bad apples" more opportunity to "forget" some details.
I personally think they are a good alternative for fixed income/conservative investors that want some market participation without the risk of the market.

snaggletooth's picture
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B24 wrote:
No, I know EIA's have some value, but since I can't sell them, I have not taken the time to research them.  I don't think they are bad products, I think they get a bad rap because of the number of reps that mis-represent them when they are sold.  I have had several clients that own them, and had no idea how the surrender charges worked, many thought their returns equaled the market returns with a floor, etc.  I am NOT saying all EIA sellers mis-represent them.  I am just saying that the products could stand on their own, even when fully explained.  There's just some slimy salesmen out there, and with all the nuances within ALL annuities, it just gives the "bad apples" more opportunity to "forget" some details.
I personally think they are a good alternative for fixed income/conservative investors that want some market participation without the risk of the market.
 
B24,
 
I agree with you.  There are bad apples in just about everything.  Bad apple salesmen and bad apple clients that choose to not remember what they were told.  I was not talking about you personally in any post. 
 
I just strongly believe that some firms out there actually hinder their reps, and therefore their clients, due to what they can and can not do.
 
I hope you didn't glance over the sentence I wrote where it said, "Talking about myself of course".
 
I've got nothing but mad respect for you, B24.

now_indy's picture
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Hank Moody wrote: now_indy wrote:Don't forget that with a VA, every one one of the companies in the subaccounts would have to go belly up to lose 100% of your client's cash. In the EIA, only one company (the issuing company) has to go belly up to lose 100% of your client's money.Stupid.
Why don't you put that oversize brain to work, and tell me where I'm wrong.

Mike Damone's picture
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I've only sold 2 EIAs in my career.  I've never really cared for them but I'm having a change of heart.  I just looked at the performance.  The first 3 years they were credited 7%.  Year four (last year) they didn't lose a single penny.  Also, when they are out of surrender they can completely walk away.  Unfortunately, my b/d now makes you fill out 3 additional forms and write an essay if  you want to sell one.
 
What traditional fixed annuities are you guys selling?

B24's picture
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snaggletooth wrote:B24 wrote:
No, I know EIA's have some value, but since I can't sell them, I have not taken the time to research them.  I don't think they are bad products, I think they get a bad rap because of the number of reps that mis-represent them when they are sold.  I have had several clients that own them, and had no idea how the surrender charges worked, many thought their returns equaled the market returns with a floor, etc.  I am NOT saying all EIA sellers mis-represent them.  I am just saying that the products could stand on their own, even when fully explained.  There's just some slimy salesmen out there, and with all the nuances within ALL annuities, it just gives the "bad apples" more opportunity to "forget" some details.
I personally think they are a good alternative for fixed income/conservative investors that want some market participation without the risk of the market.
 
B24,
 
I agree with you.  There are bad apples in just about everything.  Bad apple salesmen and bad apple clients that choose to not remember what they were told.  I was not talking about you personally in any post. 
 
I just strongly believe that some firms out there actually hinder their reps, and therefore their clients, due to what they can and can not do.
 
I hope you didn't glance over the sentence I wrote where it said, "Talking about myself of course".
 
I've got nothing but mad respect for you, B24.
 
No, I realize it wasn't pointed at me.  And I agree, there are defintely clients that "misremember" the facts.  Or they don't realize the gravity of the facts until they are faced with them years down the road (they need money, someone dies, etc.).
 
Unfortunately, I think Jones chooses not to do certain business to protect themselves and the clients (and ultimately themselves) from advisors that mis-sell products, or don't know what they're doing.  If we were OSJ's/had on-site branch managers, it would be much different.  Instead, they hide behind the cloak of "doing what is right for the client".  Sometimes I wish they would just say to all of us "ya know, some products just get financial firms into more trouble than others, like options, EIA's, etc.  Since we have too many FA's to supervise remotely, we're just not going to enter those product areas."  And be done with it.  Instead, I have to hear 3 month newbies rail about how nobody at wirehouses do what's in the best interest of their clients.  I sound like I'm bltching, but I'm really not.  I like the firm, I just feel that the non-OSJ structure holds us back sometimes.

B24's picture
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Mike Damone wrote:I've only sold 2 EIAs in my career.  I've never really cared for them but I'm having a change of heart.  I just looked at the performance.  The first 3 years they were credited 7%.  Year four (last year) they didn't lose a single penny.  Also, when they are out of surrender they can completely walk away.  Unfortunately, my b/d now makes you fill out 3 additional forms and write an essay if  you want to sell one.
 
What traditional fixed annuities are you guys selling?
 
I look at quotes on 6 different firms and pick the best.  It seems like Met has been the best recently (I am usually looking at shorter maturities, and also a lot of Immediates).

LuvIndy's picture
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Mike Damone wrote:I've only sold 2 EIAs in my career.  I've never really cared for them but I'm having a change of heart.  I just looked at the performance.  The first 3 years they were credited 7%.  Year four (last year) they didn't lose a single penny.  Also, when they are out of surrender they can completely walk away.  Unfortunately, my b/d now makes you fill out 3 additional forms and write an essay if  you want to sell one.
 
What traditional fixed annuities are you guys selling?
 
Excluding the 15 year Alliance products with 10%+ commissions to the advisor, can someone please discuss the Cons of EIA's? Is it true that only those products deserve the bad rap? If the advisor and the client are willing to sacrifice some of the results of the market for elimination of downside fluctuation, what else is bad about them?
 
ETA: on a typical product, what is surrender schedule, and what are advisor commissions?
 

theironhorse's picture
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look, you can paint every eia with a broad stroke or you can spend some time and find one which fits your criteria.  i have sold maybe 3-4 of them in my career, had completely shied away from them, beginning in about 2004.  after revisiting them recently and looking at alot of changes which have been made to address our concerns, they are nowhere near the same product they were 5+ years ago.sure, you can find the 10 year surrender schedule with a low cap, minimal participation, and paying 12% commission, but there are plenty out there which are exactly opposite of this scenario.with interest rates on fixed products so darn low, i feel i have clients that might benefit from an eia at this point.  i am not going to sit here and say "eia bad bad bad" without first exploring them a bit more.

Hank Moody's picture
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LuvIndy wrote:Mike Damone wrote:I've only sold 2 EIAs in my career.  I've never really cared for them but I'm having a change of heart.  I just looked at the performance.  The first 3 years they were credited 7%.  Year four (last year) they didn't lose a single penny.  Also, when they are out of surrender they can completely walk away.  Unfortunately, my b/d now makes you fill out 3 additional forms and write an essay if  you want to sell one.
 
What traditional fixed annuities are you guys selling?
 
Excluding the 15 year Alliance products with 10%+ commissions to the advisor, can someone please discuss the Cons of EIA's? Is it true that only those products deserve the bad rap? If the advisor and the client are willing to sacrifice some of the results of the market for elimination of downside fluctuation, what else is bad about them?
 
ETA: on a typical product, what is surrender schedule, and what are advisor commissions?
 Why should we discuss the cons when you have done such a great job inventing your own?

bspears's picture
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I've got EIA's on the books that EVEN if the client paid the surrender charge, they would be WAY WAY ahead of clients in my VA's...WAY AHEAD.

LuvIndy's picture
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Dudes I'm not trying to bitch, I'm trying to better understand what a good EIA looks like compared to the reputation they've been given by the media/industry.

theironhorse's picture
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i'm with you in that regard LuvIndy.  i would like to know which EIA's people here are using simply to point me in the direction of what they consider to be a "good product."  from there i can decide.  who are the EIA issuers you guys/gals are using?

snaggletooth's picture
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JNL, Allianz, American Equity, ING are a few you could look at.   Of those, let the client choose.

Mike Damone's picture
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The two contracts that I sold were JNL.  I used JNL because it was a clean and simple contract with no moving parts.  They also offer a variety of different surrender schedules to meet your client's time horizon.
 
I've also heard that ING has similiar clean and simple contracts but I can't speak from experience.

rankstocks's picture
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Joined: 2005-02-10

I was buying the hell of a 3% 6-year TIPS we had in inventory a couple weeks ago.  Ended up buying around 400k for clients.  That same TIPS is down to just over 2% now.   Doesn't mean there is still value, but some of the easy money is out of these.  I'd focus on some of the mid term rates, as that seems to be the sweet spot.

MinimumVariance's picture
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Joined: 2008-08-20

TIPS have been substantialy over priced since Nov. You really should take any gains NOW. Occassionally TIPS become 'mis=priced' -- ie. deviate from par. You've got to track the price of these instruments directly, not via an ETF.

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