Thanks for the responses and pointers.

It looks like the issue is quite a bit more involved than
I thought...I first need to understand the intricacies of how
regular bonds work!

Anoop

anoop <ghanwani[at]gmail.com> writes:

- quote -

Maturities. Not durations. There's a world of difference,
at least to bond people.

- quote -

Duration is a measure of the sensitivity of the price of
a bond versus the prevailing interest rates. The problems,
however, are numerous - what's the right rate, for example
to look for changes? In the case of TIPS, if you use the
"real" rate, they look like they have much longer durations
(higher sensitivies) than do normal treasuries (whose
durations are measured against the nominal yields on
fixed-rate treasuries). That's because the nominal rates
and the real rates are different and bonds with lower
interest rates have longer durations (zero-coupon bonds,
for example, have longer durations than regular coupon-
paying bonds of the same maturity).

That doesn't really answer your question, though. It appears
that you are talking more about maturities than about
durations, though there are some overlapping issues.

- quote -

It depends a little on what role those bonds have in
your portfolio. If you have a few minutes, I highly
recommend the chapter in Larry Swedroe's newest book,
"The Only Guide to Alternative Investments You'll Ever Need"
which addresses TIPs.

You can get TIPS in a mutual fund, or an ETF, and have
pretty low expenses in either (ie. around 10-20bp). In
that context, the fund never matures - but it does
have a duration - which means that its value will move
up and down with interest rates. If you are buying TIPS
to have some lower-volatility investments which have
some great low-correlation characteristics and thus
help diversify a stock portfolio, funds are just fine.
If, however, you know that you need a specific amount
of inflation adjusted cash on a specific date - or if
you want to engage in some active management of the
bond portfolio, you'll want to buy individual bonds.

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anoop wrote:

- quote -

See http://tinyurl.com/tipsyield
The CPI adjustment is the same regardless of maturity, but there is
another component to the return which still differs, based on maturity,
similar to the difference of 1 yr T-Bills vs 10 year notes.

Note: the word 'duration' has a specific meaning, you want to use the
word 'maturity' as I read your question. A quick google will find
adequate definitions for both words.

Joe

TIPS are available as 5/10/20 year durations. Since the principal
is adjusted according to inflation, what should determine the duration
for a buyer? If I'm going to purchase it in an IRA and I'm more than
20 years away from retirement, is there any reason I should be
considering TIPS of a shorter duration?

Trying to educate myself here to decide between buying individual
TIPS vs getting into a TIPS mutual fund.

Anoop