Investing in TIPS

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als347
Posts: 6
Joined: Tue Jul 09, 2013 10:46 am

Investing in TIPS

Post by als347 »

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%?
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SamGamgee
Posts: 603
Joined: Wed Nov 07, 2007 12:21 pm

Re: Investing in TIPS

Post by SamGamgee »

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.
berntson
Posts: 1366
Joined: Mon Oct 29, 2012 12:10 pm

Re: Investing in TIPS

Post by berntson »

Stocks provide some long-term protection against inflation, but much less protection in the short-term. Notice what happened in the 1970s for example.

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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.
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