TIPS at the tipping point: Less attractive but still safe insurance against inflation

in In the News
February 4th, 2013

From The Oregonian
By Brent Hunsberger, The Oregonian
February 2, 2013

Portland money manager Bill Parish used to be a big fan of TIPS — a special U.S. government bond that guarantees a return at least as high as inflation.

“It’s been a strategic part of my clients’ portfolios for years,” Parish said Monday of Treasury Inflation Protected Securities.

Yet the day we spoke, he’d sold most of his clients’ last holdings of TIPS, moving the proceeds into a low-cost, short-term bond index fund instead.

TIPS have reached a tipping point of sorts. While institutional investors continue to gobble them up at Treasury auctions, individual money managers such as Parish are spurning them.

That doesn’t mean you should abandon them, too. They can still serve a role in your retirement or investment holdings. Just tread carefully. Beware of TIPS funds. Consider buying TIPS directly and holding them until maturity. Or opt for I-Bonds instead.

TIPS are specially designed to generate a return on your investment that increases at least as much as consumer prices, a common inflation measure. With that kind of insurance, they’ve got staunch advocates.

Zvi Bodie, a Boston University finance professor, advocated in his book “Worry-Free Investing” that seniors hold the bulk of their retirement savings in TIPS. That’s in part to protect their limited income from the erosive effects of price increases, or inflation…

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