Why should I not buy ETF symbol (TIP)?

Question

I am retired (63) looking for a monthly dividend. The ETF (TIP) pays a very nice dividend . It is 90% Govt. bonds. Looks too good to be true. Thanks

Answer 1

Certainly, TIP has a place in your portfolio and the price is down some from what it has been.  I would be somewhat cautious however.  The distribution rate varies from month to month by a wide margin.  In May it was 0.4438.  In June it was 0.8255.  That is almost a 100% difference.  In April it was 0.6319.    There is one tax consideration that I am not sure of regarding TIP.  The bonds that the fund holds are of course TIP bonds.  These bonds carry an imputed inflation payment which is accrued but not paid until the bonds mature. It is the IRS policy that this accrued but not paid amount is currently taxable.  Since the distribution amount of the ETF is much greater than the regular interest payment I assume the fund is periodically selling bonds to distribute the imputed amount, but I do not know this for sure.  If however they are not you will be on the hook for taxes on interest you have  not yet received.  And do not become too impressed by the current yield of the fund.  The ytm is only about 4%

Answer 2

When interest rates rise, as they are bound to do eventually, then the price of this ETF will drop.

Consider also that this ETF rises and falls inversely to the stock market. So if the stock market bounces back, the price of TIP will fall.

Answer 3

So...put most of your money into TIP but, try a little HTE or PWE  for bigger monthly divs. Invested in Canadian oil/gas companies... energy? friendly neighbor?... not quite gov bonds but still " pretty secure" wouldn't you say?