TIPS Bonds Offer Unprecedented Returns for Retirees

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As the global economy grapples with the uncertainty of inflation, savvy investors are turning their attention to Treasury Inflation-Protected Securities (TIPS) – the lesser-known cousins of the Treasury market. These bonds, which offer a guaranteed rate of return in real, inflation-adjusted terms, have been largely neglected by both Wall Street and laypersons due to their seemingly low interest rates and the complexities of understanding their value. However, amidst the recent turmoil in the Treasury market, TIPS are now offering the most attractive deal in almost a generation, paying roughly double what historical data would suggest.

John Coumarianos, a financial adviser based in Northvale, New Jersey, points out that while TIPS may seem uninteresting to those who’ve never experienced sustained inflation, they have emerged as a robust investment option in today’s volatile market. The recent spike in TIPS yields to 2% across the board, from short-term bonds to 30-year bonds, guarantees investors a return of inflation plus an additional 2% a year for a full 30 years. This compelling proposition has not been seen since the financial crisis of 2009, making TIPS a potentially lucrative bet for those seeking to hedge against inflationary risks.

TIPS: The Best Deal In Nearly a Generation

In the face of recent turmoil in the Treasury market, long-term, inflation-protected U.S. Treasury bonds, known as Treasury Inflation-Protected Securities (TIPS), have started to offer the best deal in almost a generation. Buyers can now expect approximately double the return than what history of the past 100 years would suggest.

Understanding TIPS

TIPS work by adjusting their coupons and price to reflect inflation, ensuring a guaranteed rate of return in “real,” inflation-adjusted, purchasing power terms for those who hold a bond till maturity. However, their seemingly low interest rates often confuse laypersons and Wall Street professionals alike. Furthermore, these bonds may not appear attractive to the two generations that have only experienced deflation, not sustained inflation.

Why TIPS Matter

The significance of TIPS cannot be overstated. While the headline or "nominal" returns might seem less, the "real" returns after adjusting for inflation are what really matter. If you earn 5% on your bonds and your expenses rise 8%, you aren’t really making 5%, you’re losing 3%. TIPS yields are always quoted as inflation plus, meaning you’ll earn the quoted yield plus whatever inflation is for each year of the life of the bond.

Recent Spikes and Comparisons

Last week, the yield on TIPS bonds spiked to 2% across the board, from short-term bonds to those spanning 30 years. This means that an investment in TIPS today guarantees a return of inflation plus 2% a year for a full 30 years, regardless of market conditions. To put it into perspective, $1 invested in TIPS today is guaranteed to be worth $1.80 in real, purchasing power terms in 2053.

TIPS: Good to Excellent

While TIPS have only been around since the late 1990s, a comparison with long-term data on regular Treasury bonds and inflation suggests that today’s yields are between good and excellent. Historical data reveals that since 1928, the median return from a portfolio of 10 Year Treasurys over any given 10-year period was just 0.85% a year above inflation, and the median return over any given 20-year period was just 0.98%. Compare this with the guaranteed 2% that TIPS offer today.

Investing in TIPS

TIPS can be invested in via individual bonds or through a mutual fund or exchange-traded funds, such as Vanguard Inflation-Protected Securities (VAIPX), Schwab TIPS ( ), Pimco 1-5 Year TIPS ( ) for short-term bonds or Pimco 15+ Year TIPS ( ) for long-term ones. Buying individual bonds may offer more control, but the process can be complex and the market could be illiquid.


Nothing is certain in the world of investments. If inflation collapses, TIPS are still bonds and their price is likely to rise. If inflation doesn’t collapse, Wall Street might stop ignoring these bonds that guarantee protection against it. In the end, owning TIPS rather than regular bonds won’t matter too much either way. But as it stands, TIPS are offering the best deal we’ve seen in a generation.

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