Investors should know: TIPS ETFs and mutual funds are riskier than you think

Summary

  • TIPS mutual funds aren’t diversified. Total Bond Market funds make a better ‘core’ fixed-income investment.
  • TIPS prices can be volatile, surprising investors when the prices head down.
  • Alternative? Buy individual TIPS and hold them to maturity, along with I Bonds up to the yearly cap.

A lot of investors believe putting money into an ETF or mutual fund holding Treasury Inflation-Protected Securities is a very safe ‘core’ investment. After all, these are investments in U.S. Treasurys, so there is no credit risk.

But there is interest-rate risk and diversification risk, and price swings for these mutual funds and ETFs and be quite dramatic.

Read my full analysis at SeekingAlpha.com

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One Response to Investors should know: TIPS ETFs and mutual funds are riskier than you think

  1. Len says:

    VERY good points. After I had extolled the value of TIPS a friend invested in Vanguard’s TIPS fund (which I never suggested). When he sustained an 8% loss over a couple months he was shocked at how volatile this “safe” investment could be. There are only a few investment writers who stress the difference between bond funds and bonds but everyone should read them. Larry Swedroe comes to mind. Len

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