Sell TIPS to hedge against higher interest rates?

Is now the time to buy more TIPS in my 401(k) or to sell TIPS as a hedge against rising interest rates next year? I’m 57 years old and wonder if I should buy a short-term investment grade bond fund before interest rates go up. Or is it better to buy them when interest rates are much higher?

I cannot recommend what you should do because I have very little information about your situation, other than your age. But I can give you some pointers that might help you think about these questions.

You are asking questions involving market timing and also about your overall asset allocation. To get answers that make sense, you need to think clearly and logically about this. Bonds and bond funds are not quite as simple as you might think.

As Paul Merriman has written before, there are three rational reasons to own TIPS and other fixed-income funds. First, you might want to buy low and sell high in order to make a profit. Second, you might want these funds so you can collect the income they provide. Third, you might want them in order to dampen the volatility of the equities in your portfolio. (more…)