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The Inflation Hedge That Cost Investors 17% of Their Purchasing Power
”In December 2020, inflation-protected securities funds were sitting pretty. The average fund had gained nearly 10% over the past year as Treasury Inflation-Protected Securities’ real yields went progressively lower. Investors noticed, shoveling $22 billion into TIPS funds that year … ”
Morningstar almost always talks about funds given its funds-origin. It hasn't fairly evaluated alternatives such as ladders or Treasuries/bonds simply held to maturity.
Thanks @yogibearbull. Most of the articles I’ve seen on TIPS are positive. This one is an outlier (which I was searching for). Yes, it’s somewhat dated - referencing the 2020-2022 period. I think it says more about the herd mentality of retail investors than anything else. Many buy what’s been going up and sell when it turns south.
You are correct that TIPs funds bear little resemblance to TIPs held individually / laddered. Fair criticism. There has been some recent discussion here of a short-term TIPS fund. These are safer than the intermediate / long term funds the article likely references.
One more article I’ve dug up takes a more neutral stance on TIPS, pointing out the benefits and potential risks. All of this side-steps the issue of how accurate the BLS CPI data is / or will be going forward - a hot topic now days. Worth considering as the TIPs inflation adjustment incorporates that data.
I’ve posted these articles merely to show that investing in TIPS (especially thru funds) will not necessarily protect against inflation under all circumstances. There are no free lunches.
Comments
OP link is to an old article. In a recent article, author @JPtak has come to the conclusion that holding individual TIPS to maturity may be better than TIPS funds.
https://www.morningstar.com/funds/ladder-up-investors-should-reconsider-how-they-use-tips-funds
You are correct that TIPs funds bear little resemblance to TIPs held individually / laddered. Fair criticism. There has been some recent discussion here of a short-term TIPS fund. These are safer than the intermediate / long term funds the article likely references.
One more article I’ve dug up takes a more neutral stance on TIPS, pointing out the benefits and potential risks. All of this side-steps the issue of how accurate the BLS CPI data is / or will be going forward - a hot topic now days. Worth considering as the TIPs inflation adjustment incorporates that data.
I’ve posted these articles merely to show that investing in TIPS (especially thru funds) will not necessarily protect against inflation under all circumstances. There are no free lunches.
individual TIPS to maturity may be better than TIPS funds."
FWIW, I agree with Mr. Ptak.