I stumbled upon this fact yesterday as I was looking at historical TIPS prices: TIPS have outperformed stocks in the last five years, despite four consecutive positive years for the stock market.
Over the last five years, the TIP ETF has seen its net asset value rise 11.7%, climbing from 108.5 in January 2008 to 121.26 in January 2013. That beats the S&P 500, which had a much wilder ride to gain 11.1% over five years, rising from 1325.19 to 1472.05.
Here’s the chart, comparing the slow-moving TIP ETF with the more-volatile S&P 500:
TIPS took a hit at the beginning of the financial crisis, a combination of fear of inflation and wholesale selling of financial instruments by cash-hungry banks. The decline of about 13% by late 2008 made TIPS an especially attractive buy.
The stock market at the same time was heading to a nearly 50% decline (also creating a great buying opportunity for the brave investor). It has climbed, unsteadily, to surpass the highs of 2008.
How about the future? TIPS are expensive and have been propped up by an aggressive Federal Reserve. Stocks aren’t cheap, but don’t seem expensive either. If the economy keeps improving, it’s highly unlikely that TIPS will outperform the stock market over the next five years. But any move back to recession would probably bolster Treasuries and slam the stock market.
Wise investors continue holding stocks and bonds in up and down markets. TIPS fill the super-safe niche in your portfolio, and carry few risks for a buy-and-hold-to-maturity investor.
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Here is an historical chart showing the Dow real price over time
Also shown is TIPS going forward, held to maturity.