Inflation Protection: TIPS or Gold?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
DontTimeIt
Posts: 46
Joined: Wed Nov 16, 2016 11:50 pm

Inflation Protection: TIPS or Gold?

Post by DontTimeIt » Thu Nov 17, 2016 12:05 am

In addition to a traditional 3-fund portfolio, id like to add some protection against inflation as I suspect is likely to be on the rise now and for many many years to come.

How do TIPS & Gold each protect against inflation, how do they differ, and which do you use or recommend ?

I am a very novice investor so I hope there is someone here willing to take a moment to offer advice. Thank you.

beardsworth
Posts: 1980
Joined: Fri Jun 15, 2007 4:02 pm

Re: Inflation Protection: TIPS or Gold?

Post by beardsworth » Thu Nov 17, 2016 7:42 am

Welcome to the forum.

It's nearly always a good idea to use that search box at the top of the Bogleheads page to see what's previously been discussed about a topic before starting a new thread.

Searches for "gold inflation" and "TIPS gold" produced these other results which you may find helpful:

https://www.google.com/search?sitesearc ... +inflation

https://www.google.com/search?sitesearc ... =TIPS+gold

carolinaman
Posts: 2652
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Inflation Protection: TIPS or Gold?

Post by carolinaman » Thu Nov 17, 2016 8:17 am

IMO, gold is a really bad long term investment. There are a number of TIPS advocates on this forum but I am not one of them. However, if you have to choose between the 2, TIPS is clearly the best. Personally, I prefer to invest in equities. Over the long term, studies have shown that equities are a good hedge against inflation.

Jack FFR1846
Posts: 5871
Joined: Tue Dec 31, 2013 7:05 am

Re: Inflation Protection: TIPS or Gold?

Post by Jack FFR1846 » Thu Nov 17, 2016 8:28 am

If you had taken $20,000 five years ago and split it into 2 groups, with $10,000 buying gold and $10,000 in cash stuffed under your mattress, the cash under your mattress would have greatly outperformed gold. (gold was $1700 an oz 5 years ago, $1200 today)

A smarter person putting all the money into a bank account getting 0.1% interest would have outperformed both. An Ally online account at 1% would have been outstanding by comparison.

Gold is not so good for inflation protection, I guess.
Bogle: Smart Beta is stupid

User avatar
simplesimon
Posts: 3002
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Inflation Protection: TIPS or Gold?

Post by simplesimon » Thu Nov 17, 2016 8:44 am

How much money are you looking to invest? I-bonds will be your best bet but you can only buy $10k/year. If you have a spouse bump that to $20k/year for the two of you.

User avatar
David Jay
Posts: 4077
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Inflation Protection: TIPS or Gold?

Post by David Jay » Thu Nov 17, 2016 8:48 am

carolinaman wrote:IMO, gold is a really bad long term investment. There are a number of TIPS advocates on this forum but I am not one of them. However, if you have to choose between the 2, TIPS is clearly the best. Personally, I prefer to invest in equities. Over the long term, studies have shown that equities are a good hedge against inflation.


William Bernstein makes this case clearly in his classic book: "Four Pillars of Investing" which I read earlier this year.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
abuss368
Posts: 11882
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Inflation Protection: TIPS or Gold?

Post by abuss368 » Thu Nov 17, 2016 8:54 am

DontTimeIt wrote:In addition to a traditional 3-fund portfolio, id like to add some protection against inflation as I suspect is likely to be on the rise now and for many many years to come.

How do TIPS & Gold each protect against inflation, how do they differ, and which do you use or recommend ?

I am a very novice investor so I hope there is someone here willing to take a moment to offer advice. Thank you.


Hi DontTimeIt,

Welcome to the Bogleheads!

A very good question indeed and one that I would encourage anyone to read a little more before making any moves. Commodities are not good investments. In fact I don't consider them investments at all but rather speculation. There is a lot written about commodities but I have read both Jack Bogle and Warren Buffets thoughts and neither recommend them. If you go to Mr. Buffets website - Berkshire Hathaway and read his letter to Shareholders a few years ago, there is an entire section about gold. It will make you think.

As for TIPS, we invested in the Vanguard TIPS Fund many many years ago and sold after a very short time. In hindsight, it was luck and I am thankful we did. It is a very small corner of the bond market and thus far TIPS have not held up in periods of financial stress when investors need bonds the most. I stay the course with Total Bond.

Over time equities are your best bet to outpace inflation.

In my opinion the Three FUnd Portfolio is an excellent choice. I would not add additional funds and thus complexity. Stay the course and you will be thankful.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

asif408
Posts: 1096
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Inflation Protection: TIPS or Gold?

Post by asif408 » Thu Nov 17, 2016 10:16 am

If you have a stock heavy portfolio, I would use a little bit of commodities producers and precious metals equities as inflation protection. Gold itself is a poor inflation hedge unless you own a lot of it, and it's long term returns only keep up with inflation. Actually, gold provides more protection against deflation. If most of my portfolio was in bonds, I would have a good chunk in TIPS. Here is an explanation of how TIPS work: https://www.treasurydirect.gov/indiv/pr ... glance.htm

As another poster mentioned, stocks in general should be a good inflation hedge over the long run, and a well diversified portfolio with US & International equities should be a fine long-term inflation hedge. It just might not keep up in the short term if inflation picked up significantly. Commodities producers and precious metals equities just might provide better short term protection against inflation, if that is your goal.

User avatar
nisiprius
Advisory Board
Posts: 34335
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Inflation Protection: TIPS or Gold?

Post by nisiprius » Thu Nov 17, 2016 12:47 pm

TIPS. They are linked to inflation. Everything else is sorta-kinda-maybe-tends-to, and when you check it out, the sorta-kinda-maybe-tends-to is never reliable. The people griping about TIPS are griping about market fluctuations in the price, which has indeed been worse than in other Treasuries, but to my mind it doesn't affect the main point which is that they are indexed directly to inflation. Since there hasn't been any inflation to speak of, in the lifetime of TIPS they have not had any advantages over nominal bonds and they have had some disadvantages. If inflation takes hold we will see whether it is better to have an instrument tied to what investors guess the CPI will be over the life of the bond, or one that actually tracks what the CPI actually is.

The theory about gold is that the omniscient market always sees inflation coming before it happens and the price of gold always spikes just when you need it to, so that a small holding of gold can protect the rest of your portfolio. You could say something like that did happen in 1979-1980, but the historical record does not suggest any reliability. One of the weird debates is that gold had a fabulous run-up from 2002 to 2011 when there was no inflation. What that means to me is that it did not behave as expected. Any fan of gold will say "OK, it failed to do what gold is supposed to do, but it failed in a good way."

You have to make up your mind. Is your reason for buying gold that you have a speculative hunch it is going to take off? Or is your reason that you expect it to act in a robust, predictable, reliable way to counter inflation?

There are many problems with gold. The gold "ETF" isn't an ETF, does not provide the protections of the Investment Company Act of 1940 nor the Commodity Exchange Act of 1936. Every gold fan has their own "right way" of investing in gold, and will tell you that every other way has serious problems.
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.

rrppve
Posts: 831
Joined: Sun Aug 12, 2012 12:35 am

Re: Inflation Protection: TIPS or Gold?

Post by rrppve » Thu Nov 17, 2016 12:57 pm

TIPS are clearly the better inflation hedge. That's exactly what they are designed to do.
I also see value in physical gold, but not as an inflation hedge. I look at it as a hedge against some kind of financial Armageddon or other unlikely event. I don't view gold as an investment.

beardsworth
Posts: 1980
Joined: Fri Jun 15, 2007 4:02 pm

Re: Inflation Protection: TIPS or Gold?

Post by beardsworth » Thu Nov 17, 2016 2:11 pm

Seeing nisiprius' comments on the problems of "owning" gold in supposed ETF form, and rrppve's comment on the possibility of owning "physical gold," which to many people means holding and storing coins, I realized that the OP didn't even say how s/he imagined accessing gold in his/her portfolio, i.e., in what form.

And the OP also self-described as "a very novice investor."

It seems to me that precious metals speculation, in any form, is not something appropriate for a person just beginning to learn the ropes, although there are probably plenty of people engaged in selling precious metals who would lick their chops upon encountering such a person.

Red warning flags in view.

jalbert
Posts: 2285
Joined: Fri Apr 10, 2015 12:29 am

Re: Inflation Protection: TIPS or Gold?

Post by jalbert » Thu Nov 17, 2016 9:25 pm

TIPs hedge themselves against inflation. It is hard to see how they can provide much more protection than that. Gold, on the other hand, doesn't even hedge itself during inflation. In fact, more often than not, gold plummets when interest rates rise, which they do during inflation. Int'l equities, real estate, and small-cap value stocks are other asset classes that usually outperform when US inflation accelerates.

Our President-elect gave one speech on election night saying he wanted to do infrastructure projects, which he apparently had not discussed on the campaign trail. This triggered a sharp turnaround in the direction of S&P500 futures that night and started a change in asset behavior based on increasing inflation expectations (Sept 2016 inflation numbers were up and reported October 16, but the response to that was evidently delayed until after the election). But the Obama administration still hasn't spent all of the funds allocated to infrastructure back in 2009. It takes time to design and implement projects and Congress has to appropriate the funds. One speech does not change the entire direction of the country or the world. 5-7 days of rising interest rates has led to treasury rates just about catching up with where they were pre-brexit. It is wise to consider inflation as a legitimate risk and take steps to insulate one's assets from inflation in some way, but it would be foolhardy to project the last 7 days out over many years.

User avatar
nisiprius
Advisory Board
Posts: 34335
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Inflation Protection: TIPS or Gold?

Post by nisiprius » Thu Nov 17, 2016 9:39 pm

jalbert wrote:...small-cap value stocks ... usually outperform when US inflation accelerates...
Oh?

The worst inflation in U.S. history, at least since 1913 when they started maintaining the CPI, occurred just after World War II, 1946-1953:
Source

Image

I don't have time right now to draw a special chart, or to winkle out small-cap value instead of small-cap, but it's pretty obvious that during the worst period of U.S. inflation, small-caps underperformed large-caps:

Image

I've learned to distrust all statements about what asset classes "usually do" or "tend to do." When I check them out, it usually isn't so. (Often, it is true that they did it last time something happened).
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.

livesoft
Posts: 57216
Joined: Thu Mar 01, 2007 8:00 pm

Re: Inflation Protection: TIPS or Gold?

Post by livesoft » Thu Nov 17, 2016 9:42 pm

I've never read of anybody who bought gold that actually sold it to pay bills. I've read of folks asking how to sell gold coins that they inherited. So if you are not going to use it, why buy it?
This signature message sponsored by sscritic: Learn to fish.

jalbert
Posts: 2285
Joined: Fri Apr 10, 2015 12:29 am

Re: Inflation Protection: TIPS or Gold?

Post by jalbert » Fri Nov 18, 2016 1:18 am

The worst inflation in U.S. history, at least since 1913 when they started maintaining the CPI, occurred just after World War II, 1946-1953:

That inflationary period actually started in 1940, and it is true, based on your chart, that if you waited until 1946 to buy small caps, you missed the important part of their upswing. My comment was nonetheless with respect to SCV specifically, which is important because small value stocks generally have high leverage, and high inflation wipes out the debt in real terms. I agree there are no guarantees about how SCV, int'l equities, or real estate will behave.

TomCat96
Posts: 446
Joined: Sun Oct 18, 2015 12:18 pm

Re: Inflation Protection: TIPS or Gold?

Post by TomCat96 » Fri Nov 18, 2016 3:43 am

DontTimeIt wrote:In addition to a traditional 3-fund portfolio, id like to add some protection against inflation as I suspect is likely to be on the rise now and for many many years to come.

How do TIPS & Gold each protect against inflation, how do they differ, and which do you use or recommend ?

I am a very novice investor so I hope there is someone here willing to take a moment to offer advice. Thank you.



Gold is not a reliable protector against inflation. Perhaps if we're talking about hyperinflation a case can be made for gold as a protector of value. But for inflation projections at 0-3% from year to year, the natural swings of gold have recently been on the scale of +25% to -25%.

If you're looking to protect yourself against a 2% loss of purchasing power by buying an asset which swings between -25% and +25%, it's easy to see that you haven't so much protected yourself as assumed a a lot more risk to your portfolio. The swings and risks you assume completely demolish any benefit you would have gotten from protecting against such a relatively small amount of inflation.

In my opinion, buying gold to protect against inflation is like buying a sledgehammer to push in a thumbtack. It will get the job done---with thousands of years of human history behind it Gold will never goto zero. But the utility of that protection is only apparent when you are so desperate to hold onto your purchasing power that a 25% loss is acceptable collateral damage.

swaption
Posts: 1182
Joined: Tue Jul 29, 2008 11:48 am

Re: Inflation Protection: TIPS or Gold?

Post by swaption » Fri Nov 18, 2016 12:56 pm

Kind of surprised at the uniformity of replies here. TIPS may indeed be a better investment, and that investment is to a large extent insulated from inflation. But if someone were looking for something that provides broader portfolio wide protection (assuming a portfolio of non-TIPS bonds and stocks), I think I might lean gold, or some other form of commodity/real assets. No doubt maybe quite volatile, and little in terms of expect return, but likely somewhat non-correlated, at least with respect to the inflation risk factor. In which case the volatility might be a plus.

alfaspider
Posts: 968
Joined: Wed Sep 09, 2015 4:44 pm

Re: Inflation Protection: TIPS or Gold?

Post by alfaspider » Fri Nov 18, 2016 1:34 pm

TomCat96 wrote:It will get the job done---with thousands of years of human history behind it Gold will never goto zero.


Past performance is not necessarily indicative of future performance :happy

No, gold will probably never go to zero, but if gold ever fell to its true commodity price (i.e. it was valued only for its industrial uses), it might be valued closer to copper, which would be something like a 99% drop in value. Other metals and minerals have at one time been very highly valued only to plummet after losing cultural currency or due to a permanent increase in supply. Plenty of things were highly valued throughout much of human history only to plummet in price after technology rendered them obsolete or they became trivial to procure.

As to the OP, if you want to protect from inflation and only protect from inflation, buy TIPS. That's what they are designed to do. If you want to speculate in a commodity, buy gold. The investments most vulnerable to inflation are cash and cash equivalents, bonds, and annuities. Most other investments have at least some built-in protection.

columbia
Posts: 524
Joined: Tue Aug 27, 2013 5:30 am

Re: Inflation Protection: TIPS or Gold?

Post by columbia » Fri Nov 18, 2016 2:15 pm

It was linked elsewhere, but Vanguard has a good paper on the utility of ST TIPS for tracking near term CPI inflation.

User avatar
raven15
Posts: 290
Joined: Sun Nov 30, 2014 8:01 pm

Re: Inflation Protection: TIPS or Gold?

Post by raven15 » Fri Nov 18, 2016 4:08 pm

alfaspider wrote:
TomCat96 wrote:It will get the job done---with thousands of years of human history behind it Gold will never goto zero.


Past performance is not necessarily indicative of future performance :happy

No, gold will probably never go to zero, but if gold ever fell to its true commodity price (i.e. it was valued only for its industrial uses), it might be valued closer to copper, which would be something like a 99% drop in value. Other metals and minerals have at one time been very highly valued only to plummet after losing cultural currency or due to a permanent increase in supply. Plenty of things were highly valued throughout much of human history only to plummet in price after technology rendered them obsolete or they became trivial to procure.

The thing with gold is that it costs at least $500 to produce an ounce, and generally a bit more. I'd say the floor value over any length of time is about $600, which is far from zero. Even if it reverted to its commodity price in the short run, in the long run use would increase, prices would pick up, a scarcity mentality would set in, various people would try to play the market, and soon enough it would be right back over $1,000 as people scramble to find and mine it. I think volatility and low correlation will continue to be the rule. The price will never come close to zero, though it may become uncomfortably low over some investor's time frames. Clearly there is no inflation matching guarantee though.
It's Time. Adding Interest.

TomCat96
Posts: 446
Joined: Sun Oct 18, 2015 12:18 pm

Re: Inflation Protection: TIPS or Gold?

Post by TomCat96 » Fri Nov 18, 2016 4:37 pm

raven15 wrote:
alfaspider wrote:
TomCat96 wrote:It will get the job done---with thousands of years of human history behind it Gold will never goto zero.


Past performance is not necessarily indicative of future performance :happy

No, gold will probably never go to zero, but if gold ever fell to its true commodity price (i.e. it was valued only for its industrial uses), it might be valued closer to copper, which would be something like a 99% drop in value. Other metals and minerals have at one time been very highly valued only to plummet after losing cultural currency or due to a permanent increase in supply. Plenty of things were highly valued throughout much of human history only to plummet in price after technology rendered them obsolete or they became trivial to procure.

The thing with gold is that it costs at least $500 to produce an ounce, and generally a bit more. I'd say the floor value over any length of time is about $600, which is far from zero. Even if it reverted to its commodity price in the short run, in the long run use would increase, prices would pick up, a scarcity mentality would set in, various people would try to play the market, and soon enough it would be right back over $1,000 as people scramble to find and mine it. I think volatility and low correlation will continue to be the rule. The price will never come close to zero, though it may become uncomfortably low over some investor's time frames. Clearly there is no inflation matching guarantee though.



The forces conspiring to keep gold above zero, or as alfaspider wrote above it's "true commodity price" have been tested time and time again to be exceedingly durable. Wars, famine, social upheaval, unrest, across cultures, the world, across human history have been unable to push gold to zero. Gold has survived more turmoil than any asset out there, except perhaps for silver. You cannot eat gold in war or famine. But it's ability to retain it's value above mere industrial use has persisted.

Whatever the conditions that can actually drive gold to zero or to the point where it's price is dependent only on its industrial utility is not something that will likely occur in our lifetimes. There's always a first for everything. But it hasn't happened in your grandfather's lifetime, your grandfather's grandfather's lifetime, or even his grandfather's lifetime.

DontTimeIt
Posts: 46
Joined: Wed Nov 16, 2016 11:50 pm

Re: Inflation Protection: TIPS or Gold?

Post by DontTimeIt » Fri Nov 18, 2016 5:00 pm

beardsworth wrote:Welcome to the forum.

It's nearly always a good idea to use that search box at the top of the Bogleheads page to see what's previously been discussed about a topic before starting a new thread.

Searches for "gold inflation" and "TIPS gold" produced these other results which you may find helpful:

https://www.google.com/search?sitesearc ... +inflation

https://www.google.com/search?sitesearc ... =TIPS+gold


I didn't even notice the search box, that was a great help. thank you!

User avatar
nisiprius
Advisory Board
Posts: 34335
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Inflation Protection: TIPS or Gold?

Post by nisiprius » Fri Nov 18, 2016 5:03 pm

TomCat96 wrote:It will get the job done---with thousands of years of human history behind it Gold will never goto zero.
This is a frequent theme of the gold advocacy world and it needs to be challenged more often than it is. The Chinese, Arabs, Turks, Indians, Persians, Somalis, Greeks, Syrians, Romans, Georgians, Armenians, and Bactrians didn't travel the Silk Road for gold. The Portuguese didn't sail to the Spice Islands for gold. Certainly gold has often been regarded as valuable, but it hasn't always been the dominant medium of exchange--at one point Genoa and Venice it was peppercorns. The gold standard for backing currency did not become really widespread until the 1800s, was abandoned by many countries in the 1930s, and by the U.S. in 1971.

Quite likely gold "will never go to zero," but I don't think salt, pepper, or molybdenum will, either.
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.

DontTimeIt
Posts: 46
Joined: Wed Nov 16, 2016 11:50 pm

Re: Inflation Protection: TIPS or Gold?

Post by DontTimeIt » Fri Nov 18, 2016 5:09 pm

rrppve wrote:TIPS are clearly the better inflation hedge. That's exactly what they are designed to do.
I also see value in physical gold, but not as an inflation hedge. I look at it as a hedge against some kind of financial Armageddon or other unlikely event. I don't view gold as an investment.


TomCat96 wrote:Gold is not a reliable protector against inflation. Perhaps if we're talking about hyperinflation a case can be made for gold as a protector of value.


This is an interesting point and does clear things up a bit for me. Is hyperinflation worth protecting against....and is gold the best choice to do so, better than silver or any other investment?

DontTimeIt
Posts: 46
Joined: Wed Nov 16, 2016 11:50 pm

Re: Inflation Protection: TIPS or Gold?

Post by DontTimeIt » Fri Nov 18, 2016 5:12 pm

David Jay wrote:William Bernstein makes this case clearly in his classic book: "Four Pillars of Investing" which I read earlier this year.

I will need to find this book, thank you.

simplesimon wrote:How much money are you looking to invest? I-bonds will be your best bet but you can only buy $10k/year. If you have a spouse bump that to $20k/year for the two of you.


do I bonds and TIPs not use the same inflation rate when factoring in their payment/payouts?

DontTimeIt
Posts: 46
Joined: Wed Nov 16, 2016 11:50 pm

Re: Inflation Protection: TIPS or Gold?

Post by DontTimeIt » Fri Nov 18, 2016 5:18 pm

nisiprius wrote:You have to make up your mind. Is your reason for buying gold that you have a speculative hunch it is going to take off? Or is your reason that you expect it to act in a robust, predictable, reliable way to counter inflation?

There are many problems with gold. The gold "ETF" isn't an ETF, does not provide the protections of the Investment Company Act of 1940 nor the Commodity Exchange Act of 1936. Every gold fan has their own "right way" of investing in gold, and will tell you that every other way has serious problems.


My reason for buying gold is to hedge against my hunch that money will need to be printed for a number of possible reasons - mostly a continued spending and non balancing of the national budget. I do not know if this inflation of the US dollar will happen today or decades from now but I do believe it to be possible and would hope to have something in my portfolio to hedge against this hunch of mine....or maybe a better way to say that would be to offer some risk protection or insurance from that scenario, knowing it may never come true. I hope that helps answer your top 2 questions. Though I recently had a bad case of market timing which I know is a foul word on this forum, so if my question and now this answer is leading me down a path of market timing or speculating too much, please let me know.

I also did not have a vehicle for how I would invest, the question was posed before I thought about that aspect but it's good of you to bring it up.




beardsworth wrote:Seeing nisiprius' comments on the problems of "owning" gold in supposed ETF form, and rrppve's comment on the possibility of owning "physical gold," which to many people means holding and storing coins, I realized that the OP didn't even say how s/he imagined accessing gold in his/her portfolio, i.e., in what form.

And the OP also self-described as "a very novice investor."


great point, I am a novice when it comes to investing. Thank you. This wasnt even a thought I had, though I do believe I was leaning in the direction of non-physical gold as I wouldn't want to actually have physical gold locked up in my bank because as you point out, I have to store and then at some point sell the gold, which I'd rather not do.

User avatar
simplesimon
Posts: 3002
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Inflation Protection: TIPS or Gold?

Post by simplesimon » Fri Nov 18, 2016 5:31 pm

DontTimeIt wrote:
simplesimon wrote:How much money are you looking to invest? I-bonds will be your best bet but you can only buy $10k/year. If you have a spouse bump that to $20k/year for the two of you.


do I bonds and TIPs not use the same inflation rate when factoring in their payment/payouts?


Yes, but i-bonds won't decline in principal.

anoop
Posts: 463
Joined: Tue Mar 04, 2014 1:33 am

Re: Inflation Protection: TIPS or Gold?

Post by anoop » Fri Nov 18, 2016 5:41 pm

simplesimon wrote:
DontTimeIt wrote:
simplesimon wrote:How much money are you looking to invest? I-bonds will be your best bet but you can only buy $10k/year. If you have a spouse bump that to $20k/year for the two of you.


do I bonds and TIPs not use the same inflation rate when factoring in their payment/payouts?


Yes, but i-bonds won't decline in principal.


They use the same inflation rate, but that interest on the bond is computed differently.

With I-bonds the rate goes up and down with inflation. It is never < 0.

With TIPS, the value of the bond goes up and down with inflation, the interest rate stays the same. At maturity you get the adjusted principal, but it is not allowed to fall below face value at redemption (it can fall below face value up until maturity because of deflation).

Finally, with I-bonds, the interest can be tax deferred.

This is my favorite resource for TIPS/I-Bonds:
https://tipswatch.com/

These are my thoughts about gold.
http://anoopsplace.blogspot.com/2012/10 ... -gold.html

Of the two, I prefer TIPS.
Last edited by anoop on Fri Nov 18, 2016 5:59 pm, edited 2 times in total.

Call_Me_Op
Posts: 6579
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Inflation Protection: TIPS or Gold?

Post by Call_Me_Op » Fri Nov 18, 2016 5:51 pm

DontTimeIt wrote:In addition to a traditional 3-fund portfolio, id like to add some protection against inflation as I suspect is likely to be on the rise now and for many many years to come.

How do TIPS & Gold each protect against inflation, how do they differ, and which do you use or recommend ?


Neither is particularly good for protecting the entire portfolio. TIPS', at best, will sort-of protect the portion invested in them (if held to maturity in a tax-advantaged account).

Gold is a very unreliable hedge for inflation.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

young-ish
Posts: 35
Joined: Fri Apr 15, 2016 12:10 am

Re: Inflation Protection: TIPS or Gold?

Post by young-ish » Fri Nov 18, 2016 6:19 pm

Call_Me_Op wrote:
DontTimeIt wrote:In addition to a traditional 3-fund portfolio, id like to add some protection against inflation as I suspect is likely to be on the rise now and for many many years to come.

How do TIPS & Gold each protect against inflation, how do they differ, and which do you use or recommend ?


Neither is particularly good for protecting the entire portfolio. TIPS', at best, will sort-of protect the portion invested in them (if held to maturity in a tax-advantaged account).

Gold is a very unreliable hedge for inflation.


This is sensible advice.

I would add that during periods of high inflation (10%+ per year) gold would probably be a more reliable hedge.

jalbert
Posts: 2285
Joined: Fri Apr 10, 2015 12:29 am

Re: Inflation Protection: TIPS or Gold?

Post by jalbert » Fri Nov 18, 2016 8:19 pm

My reason for buying gold is to hedge against my hunch that money will need to be printed for a number of possible reasons - mostly a continued spending and non balancing of the national budget.

Gold reserves are one of the things that enable a country's currency to be considered a reserve currency. The point is that the country can sell or exchange gold to meet obligations before having to print money, adding stability to the currency. If the US govt were under such serious pressure to meet financial obligations, selling substantial gold from the country's gold reserves would certainly be on the table for consideration. Holding gold might be far more detrimental than beneficial in such a situation.
Last edited by jalbert on Fri Nov 18, 2016 9:30 pm, edited 1 time in total.

User avatar
Mel Lindauer
Moderator
Posts: 27624
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Inflation Protection: TIPS or Gold?

Post by Mel Lindauer » Fri Nov 18, 2016 9:10 pm

I'd second the recommendation of I Bonds for the first $10,000 ($20,000 if married) per year. Unlike TIPS, I Bonds also offer DEflation protection since their value can never decrease should we encounter a period of deflation. They can also be used, tax-free, for qualifying educational expenses.
Best Regards - Mel | | Semper Fi

User avatar
nedsaid
Posts: 8821
Joined: Fri Nov 23, 2012 12:33 pm

Re: Inflation Protection: TIPS or Gold?

Post by nedsaid » Fri Nov 18, 2016 9:27 pm

Mel Lindauer wrote:I'd second the recommendation of I Bonds for the first $10,000 ($20,000 if married) per year. Unlike TIPS, I Bonds also offer DEflation protection since their value can never decrease should we encounter a period of deflation. They can also be used, tax-free, for qualifying educational expenses.


I own both I bonds and TIPS.
A fool and his money are good for business.

User avatar
Mel Lindauer
Moderator
Posts: 27624
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Inflation Protection: TIPS or Gold?

Post by Mel Lindauer » Sat Nov 19, 2016 3:07 pm

nedsaid wrote:
Mel Lindauer wrote:I'd second the recommendation of I Bonds for the first $10,000 ($20,000 if married) per year. Unlike TIPS, I Bonds also offer DEflation protection since their value can never decrease should we encounter a period of deflation. They can also be used, tax-free, for qualifying educational expenses.


I own both I bonds and TIPS.


That works, but I'd consider putting one's first $10 or $20k in I Bonds before buying TIPS for the reasons I stated.
Best Regards - Mel | | Semper Fi

alphabeta01
Posts: 11
Joined: Tue Oct 18, 2016 10:07 am

Re: Inflation Protection: TIPS or Gold?

Post by alphabeta01 » Sun Nov 20, 2016 5:53 pm

Is there a single fund that combines Total Bond (50% to 70%) and TIPS (50% to 30%)? There is one in GA 529 Plan. I am looking for something similar that I can purchase in Schwab or Fidelity IRA. Vanguard Target Retirement Income Fund (VTINX) comes close, but it contains 30% equities.

Tommy
Posts: 116
Joined: Mon Mar 07, 2016 11:47 pm

Re: Inflation Protection: TIPS or Gold?

Post by Tommy » Sun Nov 20, 2016 8:31 pm

livesoft wrote:I've never read of anybody who bought gold that actually sold it to pay bills. I've read of folks asking how to sell gold coins that they inherited. So if you are not going to use it, why buy it?

Gold is one of the ways to pass wealth to the next generations. Maybe not even to the children, but to grandchildren and beyond...100 years ago $20 gold coin(0.9675 oz) cost ..$20. Today it cost about $1200. Sure, you could have invested those $20 in the stock market and might have today more, but , in the same time you could have lost your investment in 1929.. So, if you want to pass some wealth to future generations for sure it is gold. Stock market can crash, land can be seized by government, bonds can lose value in default, but gold will retain it value.

Post Reply