Well, Arends has been annoying me for years and I wouldn't trust a thing he says. He's the one who wrote an apparently-not-joking article, Putting Your Emergency Money in Blue Chips: With Cash Accounts Offering Negligible Interest, Stashing Some Emergency Money in Blue-Chip Stocks Could Pay Dividends.
See, when you divide the last dividend payment that was made by the current price of the stock, the quotient is a bigger number than it is for a bank account, ergo it must be a better investment.
I'm about to look at the article but the last time he ranted against TIPS, he deliberately confused the issue of "returns" and "real returns," describing them as investments that are "guaranteed to lose money
." In every other context but dishonest attacks on TIPS, to "lose money" means a smaller number of dollars
, and nominal returns are understood unless otherwise stated. Let me see whether he does it again, today.
Yes, he does.
Here's the earlier column, May 6, 2011.Holding TIPS Will Make You Poorer: Millions of people are holding an investment guaranteed to lose money, writes Brett Arends.
So, what happened since then?
My own portfolio of TIPS, acquired over a decade, is, of course,
"making money" and
increasing in real value. Now, let's see what happened to someone who invested in VIPSX on May 6, 2011, the day he warned that TIPS would "make you poorer." And, taking a big (psychological) risk here, let's see how it compared to someone who invested in one of his dividend stocks. I'm going to use whatever U.S. stock he mentions first in his "emergency money" article. I don't know how it will turn out and I'll show the result either way. Given what the stock market has been doing, the stock should do much better than the TIPS fund. OK. The first stock he mentions: "AT&T yields about 5.7%." And, inflation
, total inflation 5/2011 to today, 229.601 today = 225.964 then so divide final numbers by 1.016 to correct for inflation.
So, $10,000 invested on 5/6/2011 grew to $11,436.62 in the TIPS fund and to $12,485.35. Correcting to 5/2011 dollars, the numbers become $11255.46 and $12287.23 respectively. So there's no question:
- BOTH the TIPS fund Arends hates and the dividend-paying stock he loves made money, and made you wealthier in inflation-adjusted purchasing power.
- The stock made considerably more, but the TIPS fund did just fine, 6.8% real, annualized, if my calculations are right.
- The TIPS fund grew in value fairly smoothly, without abrupt ups and downs.
- AT&T stock was clearly a much risker investment. Looking at just the drops, it dropped 8% in value over a period of a couple of months not once but twice, during a period of relative economic and stock-market stability. This is not emergency-fund behavior. Receiving a quarterly dividend of $0.43 on 7/6/2011 from a stock priced at $31.23 is not like withdrawing $0.43 from a bank account with $31.23 in it--not unless drawing $0.43 from the bank account causes the account balance to drop by $2.92.
In short: the TIPS fund made money and earned a tidy real yield. The "blue-chip" stock made more money and earned a larger real yield. The additional returns were obviously an additional reward for much higher risk.Just like everyone always thought.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.