As I have noted, my bias is to buy TIPS through Treasury Direct and to hold them to maturity. If you can find a way to buy them through your broker and place them in a tax-deferred account, all the better. (And let me know how that worked.)

I also think that TIPS mutual funds are fairly risky right now, not super risky, but enough to keep in mind if you plan to dump a major investment into a TIPS fund right now.

This chart helps make my point:

I have owned the Vanguard TIPS fund (blue line in chart) in the past — bought it in that nasty dip at the end of 2008 and then sold it in Sept. 2009 after a 9.1% capital gain (tax-free account, of course). I switched into Vanguard Total Bond Market, which is shown in red in the chart above.

VBMFX (Total Bond) is a pretty boring fund, and unloved. Right now, it has a yield of 3.33%. Its duration is 5. Its credit quality averages AA.

VIPSX (Vanguard TIPS) is pretty hot, the ‘inflation-fighter.’ Its duration is 5.33 and its credit quality is AAA, naturally. It yields 2.52%.

So the TIPS fund has higher duration and lower yield than the boring total bond market.

But the swings in yield of TIPS are obviously pretty dramatic, if you look at the chart above. If the TIPS base yield rises back to 2% or 2.5%, fairly normal levels, the owners of TIPS mutual funds are going to be in for a wild ride.