! TIPS and the Nature of Inflation Protection
Daniel W. Wallick is a principal with the Vanguard Investment Strategy Group.
Jill Marshall is an investment analyst with the Vanguard Investment Strategy Group.


John from NY posted over 7 years ago:

The article does a good job explaining the mechanics of TIPs bonds, but an additonal important factor to consider is the tax consequences of ownership. If you own TIPS bonds, you must report as OID (original Issue Discount) any increase in the inflation-adjusted principal amount of the instrument that occurs while you held the instrument during the year, reported as ordinary interest. In this respect TIPS are treated just like STRIPS, differing in the fact that the inflation-adjusted principal will vary every 6 months! See IRS Publication 1212 for more details.

Peter from MD posted over 6 years ago:

Bond prices go up when interest rates go down. So isn't it possible for the interest risk premium to be negative? For example, if interest rates are already very high, and the main "risk" is that they may fall?

Charles from WI posted over 6 years ago:

Look at the website shadowstats.com
The US Government has a huge conflict of interest in both defining inflation for the purpose of TIPS and paying the coupon.
TIPS are analogous to equity indexed annuities heavily marketed by the life insurance industry

Jim from CT posted over 6 years ago:

Once again the US government makes it difficult for the individual investor to invest for retirement. Shame on Uncle Sam!

Jim from CT posted over 6 years ago:

i'll just give up contributing, drink my coffee, watch the sunrise, chill and claim "medicaid, unemployment etc"

Scott from NY posted over 6 years ago:

These bonds aren't really all I thought they were cracked up to be. I'm disappointed.

Gerry from IL posted over 5 years ago:

Suggest readers consider a senior bank loan fund such as BKLN as an alternative to TIPS. Not as credit worthy as TIPS, but highly collaterized and a reliable inflation-protected yield, as such loans are adjusted every 30-90 days to a LIBOR+ rate.

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