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It’s been a tough year for bonds, including Treasury inflation-protected securities, or TIPS, an inflation-linked asset. Despite recent losses, TIPS offer portfolio diversification amid market uncertainty, experts say.
Backed and issued by the US government, investors can buy TIPS in terms of five, 10 or 30 years, with semi-annual payments based on asset value, which is adjusted every six months for inflation.
However, bond values and market interest rates move in opposite directions, causing TIPS values to fall because the Federal Reserve has raised rates.
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As of October 10, the iShares TIPS Bond ETFs It’s down more than 13% so far this year. However, TIPS have outperformed S&P 500 Indexwhich is down nearly 24% over the same period.
“He’s been a perfect asset in this environment,” said certified financial planner Anthony Watson, founder and president of Thrive Retirement Specialists in Dearborn, Michigan.
TIPS, particularly TIPS funds with shorter average maturities, have offered a cushion amid double-digit losses for stock and bond markets, he said.
As interest rates rise, you want TIPS to mature and be reinvested faster, taking advantage of higher yields more quickly, he said.
Typically, Watson allocates 20% of a client’s fixed income portfolio to a TIPS fund, such as the Vanguard Short-Term Inflation-Protected Securities Index Fund. exchange traded fundwhich invests in assets with average maturities of 2.6 years.
JPMorgan Chase CEO Jamie Dimon said on Monday that the United States is likely to slip into a recession in the next “six to nine months” and forecast that the S&P 500 could fall another 20%, depending on the Fed’s future plans. Federal.
He has been a perfect asset in this environment.
anthony watson
Founder and President of Thrive Retirement Specialists
Nicholas Bunio, a CFP with Retirement Wealth Advisors in Berwyn, Pennsylvania, also uses TIPS allocations for diversification, opting for single-asset funds for “ease and convenience.”
However, if someone can’t bear TIPS losses, there is always the option to buy individual TIPS and hold them to maturity, he said.
TIPS investors focus on “capital preservation”
David Enna, founder of Tipswatch.com, a website that tracks inflation-protected assets, said “principal preservation” is a top motivation for TIPS investors, especially those nearing retirement. .
“They are much less risky right now than they were,” Enna said. “And they are certainly less risky than the stock market right now.”
“I think it’s good to have a mix of fixed income types,” added Enna, who personally owns TIPS short and individual TIPS funds.
Source: news.google.com