Larry Swedroe of Wise Investing posted a good analysis today on CBSMoneyWatch.com, talking about the the risk/rewards of TIPS versus conventional Treasuries.
He makes the case that even though the base yield on the 5-year TIPS is low by historical standards, it still makes sense when measured against a traditional 5-year Treasury. He says:
“The current yield on the five-year nominal Treasury is about 2.2 percent. With the Philadelphia Fed’s five-year inflation forecast at 2.1 percent, the expected real return is 0.1, meaning it’s still about 0.3 percent higher than the comparable TIPS yield. Again, given the relatively small risk premium, TIPS are still the preferred choice.”
Of course, there is a lot of other ways to invest your money, outside of Treasuries. But if you are looking for safety without inflation risk, buying this upcoming 5-year TIPS and holding it to maturity looks like a solid – if very boring – investment.