Why Would Anyone Buy Inflation-Protected Investments?

Summary

  • The idea: Push inflation-protected money into the future, when you will need it in retirement.
  • Both I Bonds and TIPS are super safe investments that can be purchased with zero commissions and fees.
  • The only risk in purchasing ‘inflation protection’ is that you will receive a slightly lower return than with nominal investments. The cost is very low.

After getting together with friends from my college days, I suddenly had a moment when I realized that most people – maybe 95% of Americans – have no idea what inflation-protected investments are or how they could fit into a portfolio.

Read my full analysis on SeekingAlpha.com

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3 Responses to Why Would Anyone Buy Inflation-Protected Investments?

  1. Ed says:

    We the people live here: The Public Be Suckered.
    Look at these several very instructive histories that are seldom shown, to minimize learning!
    http://showrealhist.com/yTRIAL.html
    http://patrick.net/?p=1223928

  2. Ron says:

    I really enjoy your blog and agree 100% on buying I-Bonds to the max each year and buying individual TIPS in a ladder and holding them to maturity.

    However, your comment about TIPS and Treasury Direct isn’t entirely correct when you said their website won’t tell you the value of your TIPS. The inflation-adjusted value of your TIPS holdings is updated and clearly displayed every 6 months.

    As you mentioned, you can also use the monthly CPI ratios to calculate the current TIPS value each month, but it requires a bit of Excel. But the math is trivial – just multiply the TIPS par value with the CPI ratio each month.

    And the manual 1099 download doesn’t just apply to TIPS since you also need to do it for I-Bonds that are sold (they appear in 1099-INT section). At least Treasury Direct will notify you via email that a 1099 is available.

    I-Bonds and TIPS are great investments, and it’s too bad that 99% of people don’t know about them. Keep up the good work.

    • tipswatch says:

      Ron, it is true that you can find the current values – as of some month in the past – on TreasuryDirect by going to the listing of all TIPS holdings and clicking on them one by one to find the current value. Tedious.

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