Hi!
I am currently reading The Intelligent Investor, and they mention investing a small portion of your money in TIPS to protect against inflation over time. Any recommendation as to magnitude of that portion? 1%? 5%? 7%?
Investing in TIPS
Re: Investing in TIPS
I regard equities as being _roughly_ adjusted for inflation on an ongoing basis, so as long as I have a high proportion of my assets in equities, I don't bother with TIPS. If I were older, with less that 50% equities, I would definitely consider adding TIPS. One rule of thumb might be 50% - %equities. So if you were in 40% equities, you would choose 10% TIPS.
Re: Investing in TIPS
Stocks provide some long-term protection against inflation, but much less protection in the short-term. Notice what happened in the 1970s for example.
I split my relatively small bond allocation between TIPs and nominal treasuries. The former do better when there is unexpectedly high inflation, the latter do better when there is unexpectedly low inflation. Having both diversifies away that risk and reduces the volatility of my bond holdings.
I split my relatively small bond allocation between TIPs and nominal treasuries. The former do better when there is unexpectedly high inflation, the latter do better when there is unexpectedly low inflation. Having both diversifies away that risk and reduces the volatility of my bond holdings.