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No. of Recommendations: 1
a quote from the article:

""Many retirees and soon-to-be retirees nevertheless are avoiding TIPS these days because their stated yields are negative. The 10-year TIPS, for example, currently is quoted with a yield of minus 0.65%. That headline yield triggers loss aversion among most of us, keeping all but the most fearless from even considering TIPS.

But retirees are being misled if they think of these negative yields in nominal terms. They instead are real yields—yields relative to inflation. So a better way to think of the current TIPS yields is that your return over the next 10 years will be 0.65% below whatever the CPI’s rate of growth will be. For example, if the CPI increases 10% annualized over the next decade, your return would be 9.35% annualized--guaranteed.""

And a link to it:

https://www.marketwatch.com/story/retirees-should-consider-t...
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No. of Recommendations: 3
Blacktree,

To buy TIPS as an inflation hedge is to participate in a rigged game. Our dear Bureau of Economic Propaganda --the BLS-- has been fudging the CPI number for a long, long time. It will continue to do so in the future, because it can't afford otherwise. A far better inflation hedge is commodities.

Arindam
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https://www.bls.gov/cpi/additional-resources/historical-chan...
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My view of tips is that they are for people who are looking for 0 real return, or in your example, less than zero. I would think you’d be better off with the permanent portfolio.
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"My view of tips is that they are for people who are looking for 0 real return."

TIPS are bought in small quantities by financially-naive retail investors who are so scared they'll settle for peanuts and massively --and probably on margin-- by some very sophisticated insitutionals who can turn a serious profit on the trade or who need to deleverage so as to enhance their risk profile.

Right now, I wouldn't mess with them. Let some clarity emerge in the inflation/deflation picture and let the Fed stop making things worse.
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For example, if the CPI increases 10% annualized over the next decade, your return would be 9.35% annualized--guaranteed.

But the big problem is that if CPI increases 10% annualized over a decade, interest rates will also rise on US government debt, and that will cause annual budget deficits to get higher and higher, and thus require more and more debt ... all denominated in dollars. Eventually, the value of a dollar goes down ... and those "guaranteed" returns are in dollars ... so your purchasing power will still go down.
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Eventually, the value of a dollar goes down ... and those "guaranteed" returns are in dollars ... so your purchasing power will still go down.


True of any fixed income investment. In fact, true of any investment. The goal is to invest in things that beat inflation, not just keep up.
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But the big problem is that if CPI increases 10% annualized over a decade, interest rates will also rise on US government debt, and that will cause annual budget deficits to get higher and higher, and thus require more and more debt ... all denominated in dollars. Eventually, the value of a dollar goes down ... and those "guaranteed" returns are in dollars ... so your purchasing power will still go down.

The inverse of a decline in PP is a rise in inflation. TIPS address that. The PP of your tips should remain constant.
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The inverse of a decline in PP is a rise in inflation. TIPS address that. The PP of your tips should remain constant.



The problem as I understand it is that TIPs are currently being sold contain a negative interest rate so you are guaranteed to lose money to inflation. I think it is around -0.5%. So if inflation is 1% you end up with +0.5%.

If they were at 0 or a positive rate I'd be more interested in them.
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True, but you lose less than you would on other assets in the d Ed vent of an inflation event. Since investment opportunities are always judged against alternatives, the half percent loss on TIPs could be the best performing option in the event of a significant spike in inflation. Personally I prefer businesses with pricing power, but ...
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True of any fixed income investment.

I don't think this is true. It all depends on when the investment is being made! I have a friend that received student loans each year in the early 80s, but had his college already paid for, so he invested the money into treasury bonds, specifically 30-year treasury bonds, and those bonds at maturity beat nearly all other investments (when measured in terms of real return).

In fact, true of any investment. The goal is to invest in things that beat inflation, not just keep up.

Yes, the goal is to beat inflation, otherwise what's the point of investing in the first place?
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The inverse of a decline in PP is a rise in inflation. TIPS address that. The PP of your tips should remain constant.

Huh? How does a return of (inflation minus 0.65%) keep up with inflation? It is falling behind by 0.65% every single year!
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