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Politics : Ask Michael Burke

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To: Joan Osland Graffius who wrote (97637)	10/6/2002 9:39:35 AM
From: Tommaso	Read Replies (1) of 132070

I guess I ought to put this question directly to MB since he knows more about bonds than anyone I know how to get in touch with. My wife's CREF annuity is totally in TIPS, which have had a fantastic run-up (for a bond fund) over the last year. A lot of this is due to the decline in long-term interest rates, plus the obvious advantage of having some kind of inflation protection. But the minute long term interest rates start back up, this fund will be knocked down. I think interest rates tend to head up in advance of measureable inflation, so it would be a while before the inflation-protection adjustments would kick in. It just seems a shame to me to sit on 15% gain and watch rising interest rates eat it away. There is a money market account available that this money could be switched into. I just wish there were a government guaranteed (i.e. T-bills) account. I am worried about defaults on commercial paper should things get really grim. The money market fund of course is only paying about 1 or 2% right now, but in the event of tight money that would immediately rise. (The payout from the annuity would not drop to 1-2%, being based on the total amount in the account). I am thinking maybe it might be a good idea to nail down some of those gains in TIPS by switching part of it to the money-market fund (and eventually back into stocks when we see P/Es of 12 or under on the S&P). Or maybe it might be best just to keep hands off and be prepared to see the TIPS fund decline, and say, well, 10% down is better than 60% down (in stocks). I do wish there were more fixed-income options from TIAA/CREF. All they have is a bond fund (with full interest rate risk plus inflation risk) and the other two. I wish there were a short-term treasury fund and a world income fund. But it's not anything I can do anything about.

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