Smarter Bear Newsletter February 2025

For clients and friends of Smarter Bear

Feb 01, 2025

One of our favorite quotes from John Bogle

Bogle is considered the creator of index investing and the index mutual fund. "Don't look for the needle in the haystack. Just buy the haystack."

Treasury Inflation Adjusted Securities (TIPS)

TIPS have gotten renewed interest in the last couple of years with the recent period of higher inflation and higher-than-usual inflation ongoing. TIPS are a type of US Treasury bond offering and are thus backed by the full faith and credit of the US Government. Along with IBonds, which we will write about in an upcoming newsletter, TIPS are one of the two ways to protect against future inflation with backing from the US Government.

TIPS can be bought from TreasuryDirect or your broker (Fidelity, Schwab, etc), usually for no commission. TIPS can be purchased when initially offered "at auction." or in follow-on offerings, known as "reopening," from either TreasuryDirect or your broker. They can also be purchased on the secondary market from your broker.

TIPS pay interest every six months based on the coupon rate set when issued and the bond's accrued value. The "accrued value" is the bond's worth, adjusted monthly based on US Government inflation data. That is how inflation protection works on both the bond's value and the interest payments.

Smarter Bear recommends:

Buy individual TIPS rather than TIPS mutual funds or ETFs to fully benefit from inflation protection. Recently, some leading TIPS funds have underperformed inflation.
Purchasing TIPS from your broker as opposed to Treasury Direct as that offers more flexibility when buying, selling, and re-investing the interest payments
Buying TIPS for principle protection and capital preservation as opposed to growth.
Buying and holding TIPS inside IRAs as TIPS are not tax-efficient.
Buying TIPS to match expected future spending needs.

Financial companies looking for new ways to make money part 2

We initially wrote about this in our October 2024 newsletter. Most recently, there has been a spike in innovative and high-fee ETF products. Most include options strategies that promise to magnify the returns of underlying stocks or indexes—both on the upside and the downside. However, many have failed to deliver on the promised returns. Smarter Bear has researched this complicated area, and we are happy to share our findings. In general, Caveat Emptor.

2025 brings some changes to 401k/403b contributions limits

It's worth reviewing your situation to see if updates to your plan and choices could be helpful.

The base amount that can be deferred into your employer-sponsored qualified plan (401k, 403b, 457) for 2025 has increased from $23,000 to $23,500.
The catch-up contribution for people 50-59 or over 63 remains at $7,500, but a new turbo catch-up was added for people 60-63, allowing them to make catch-up contributions up to $11,250.

Other new tax-related information for 2025 can be found on our smarterbear.net website here.

Smarter Bear is always available for a free consultation to answer questions and discuss whether our services can help address your needs. You can reach us at smarterbear.net. We offer no-cost second opinions for DIYers or people working with another investment or financial advisor.

We write our own newsletter, so we know these topics well. Many advisors and firms employ marketing departments, generative AI, or third-party content services to produce their newsletters.

If you know others who would like to be added to our list, feel free to add them at https://smarterbear.substack.com. We aim to write short, helpful, and easy-to-read items on financial topics of interest. We'd like to hear any suggestions for topics to cover in future newsletters.

None of the above is intended as a substitute for investment, tax, or legal advice. Your personal situation will determine what's best for you, and we recommend you consult an appropriate professional advisor.