Are TIPS really a good inflation hedge? Pros and Cons

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willthrill81
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Wed Sep 18, 2019 10:23 am

Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
https://gold-standard.procon.org/
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 10:57 am

willthrill81 wrote:
Wed Sep 18, 2019 10:23 am
Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
https://gold-standard.procon.org/
Thanks for the information, willthrill81.

Gold seems like a very emotional financial instrument.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Wed Sep 18, 2019 11:04 am

Silence Dogood wrote:
Wed Sep 18, 2019 10:57 am
willthrill81 wrote:
Wed Sep 18, 2019 10:23 am
Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
https://gold-standard.procon.org/
Thanks for the information, willthrill81.

Gold seems like a very emotional financial instrument.
No prob.

Gold does seem to bring out emotions in people, though I don't see why. It's just a shiny metal. But there's no disputing that a small allocation to gold (10-20%) has significantly boosted SWRs over the last ~40 years, and not just during the 1970s stagflation. Since 2000, gold has significantly outperformed both stocks and bonds. While someone's theory might state that its 'expected' return is zero, that has not been the case, leading me to question whether the theory is valid.

That being said, I'm not a gold bug at all and only hold a tiny percent of our net worth in physical precious metals. But I don't think that it should be dismissed out of hand either.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 11:17 am

willthrill81 wrote:
Wed Sep 18, 2019 11:04 am
Gold does seem to bring out emotions in people, though I don't see why. It's just a shiny metal. But there's no disputing that a small allocation to gold (10-20%) has significantly boosted SWRs over the last ~40 years, and not just during the 1970s stagflation. Since 2000, gold has significantly outperformed both stocks and bonds. While someone's theory might state that its 'expected' return is zero, that has not been the case, leading me to question whether the theory is valid.

That being said, I'm not a gold bug at all and only hold a tiny percent of our net worth in physical precious metals. But I don't think that it should be dismissed out of hand either.
I don't invest in things I don't understand.

I don't invest in gold because I don't understand it.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Wed Sep 18, 2019 11:33 am

Silence Dogood wrote:
Wed Sep 18, 2019 11:17 am
willthrill81 wrote:
Wed Sep 18, 2019 11:04 am
Gold does seem to bring out emotions in people, though I don't see why. It's just a shiny metal. But there's no disputing that a small allocation to gold (10-20%) has significantly boosted SWRs over the last ~40 years, and not just during the 1970s stagflation. Since 2000, gold has significantly outperformed both stocks and bonds. While someone's theory might state that its 'expected' return is zero, that has not been the case, leading me to question whether the theory is valid.

That being said, I'm not a gold bug at all and only hold a tiny percent of our net worth in physical precious metals. But I don't think that it should be dismissed out of hand either.
I don't invest in things I don't understand.

I don't invest in gold because I don't understand it.
I get that, but I don't think that any of us truly understand stocks or bonds, certainly not why their prices move the way they do.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Wed Sep 18, 2019 2:17 pm

Silence Dogood wrote:
Wed Sep 18, 2019 8:47 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
If by inflation protection you mean "highest possible real return, high enough to beat inflation despite fluctuations," that's not inflation hedging, that's just "high return."

But if by "inflation hedge" you mean known-in-advance accurate direct tracking of the CPI, not just a market-mediated tendency, then TIPS and series I savings bonds are unique. Nothing else does what they do.
Excellent post, nisiprius! As a (relatively) young person/investor, I consider myself very fortunate to have learned so much from you.

I'd also like to point out that, while not the stated concern in the original post, Series I Savings bonds also offer protection during deflationary periods.
TIPS also offer protection against deflation.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by CULater » Wed Sep 18, 2019 2:19 pm

FIREchief wrote:
Wed Sep 18, 2019 2:17 pm
Silence Dogood wrote:
Wed Sep 18, 2019 8:47 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
If by inflation protection you mean "highest possible real return, high enough to beat inflation despite fluctuations," that's not inflation hedging, that's just "high return."

But if by "inflation hedge" you mean known-in-advance accurate direct tracking of the CPI, not just a market-mediated tendency, then TIPS and series I savings bonds are unique. Nothing else does what they do.
Excellent post, nisiprius! As a (relatively) young person/investor, I consider myself very fortunate to have learned so much from you.

I'd also like to point out that, while not the stated concern in the original post, Series I Savings bonds also offer protection during deflationary periods.
TIPS also offer protection against deflation.
So do nominals. That's the way bonds work.
Last edited by CULater on Wed Sep 18, 2019 2:43 pm, edited 2 times in total.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by beehivehave » Wed Sep 18, 2019 2:25 pm

usagi wrote:
Wed Sep 18, 2019 2:06 am
"Are TIPS really a good inflation hedge? Pros and Cons"

Answer: no.

For one they simply protect their own purchasing power in a loose sort of way that may or may no tbe relevant to you. They do nothing to protect any asset that is not a TIP.

But the biggest issue, and the one academic discussions like this gloss over (because reality is not sexy) is the point nisiprius loosely made, that the CPI may not preserve the purchasing power for the basket of goods that is relevant to you. As people age the disparity grows as the percentage of your income that goes to medical care generally rises, a component that not only is likely a larger percentage of your budget but also one that is likely to outstrip the reported inflation rate. The core of the issue is everyone has a personal basket of goods and it is unlikely that is will be adequately reflected in the inflation adjustments you receive. It is not a trivial point.

And of course the infamous taxation issue.

However, other than I-bonds, nothing works quite like them, that being said, they really do a poor job or preserving purchasing power because there is no way to insulate your particular basket of goods.

When they were first issues with a decent real return they made a level of sense, now...to each their own.

But the answer to your question is a firm no.
So because they do not perfectly protect against inflation - for example, against ALL your assets and ALL your expenses - they don't protect against inflation? Got it.
(Granted, the initial real returns were a much better deal.)

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by JBTX » Wed Sep 18, 2019 3:44 pm

willthrill81 wrote:
Wed Sep 18, 2019 10:23 am
Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
https://gold-standard.procon.org/
Just think if we were on gold standard 2000-present. Around 2000 it was at $400, in today's $. Then around 2010 it reached $2000. That would mean massive deflation and likely a severe depression. Now in reality if the dollar is backed by gold the economic trajectory would have been very different, but it is an instructive example.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Wed Sep 18, 2019 5:00 pm

Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
When we were purported to be on the gold standard, it generally was suspended at times of financial duress due to the limitations it placed on monetary policies needed at those times.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 5:52 pm

willthrill81 wrote:
Wed Sep 18, 2019 11:33 am
Silence Dogood wrote:
Wed Sep 18, 2019 11:17 am
I don't invest in things I don't understand.

I don't invest in gold because I don't understand it.
I get that, but I don't think that any of us truly understand stocks or bonds, certainly not why their prices move the way they do.
I am confident enough in my understanding of stocks and bonds to say that, yes, I understand stocks and bonds.

I understand why I can expect a positive real rate of return when I invest in stocks and bonds. I understand the fundamental ideas behind loaning money out/owning a business and why that can result in a positive real rate of return.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Wed Sep 18, 2019 5:58 pm

Silence Dogood wrote:
Wed Sep 18, 2019 5:52 pm
willthrill81 wrote:
Wed Sep 18, 2019 11:33 am
Silence Dogood wrote:
Wed Sep 18, 2019 11:17 am
I don't invest in things I don't understand.

I don't invest in gold because I don't understand it.
I get that, but I don't think that any of us truly understand stocks or bonds, certainly not why their prices move the way they do.
I am confident enough in my understanding of stocks and bonds to say that, yes, I understand stocks and bonds.

I understand why I can expect a positive real rate of return when I invest in stocks and bonds. I understand the fundamental ideas behind loaning money out/owning a business and why that can result in a positive real rate of return.
I'm sure you do, as do I. But why did the stock or bond markets move the way they did today, or last week, or last month? Such things are beyond our understanding. Certainly we have theories about why they move the way they do, but they are just that, theories, and none of them come close to accounting for everything we see. That's what I'm referring to when I say "truly understand."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 5:58 pm

CULater wrote:
Wed Sep 18, 2019 2:19 pm
FIREchief wrote:
Wed Sep 18, 2019 2:17 pm
Silence Dogood wrote:
Wed Sep 18, 2019 8:47 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
If by inflation protection you mean "highest possible real return, high enough to beat inflation despite fluctuations," that's not inflation hedging, that's just "high return."

But if by "inflation hedge" you mean known-in-advance accurate direct tracking of the CPI, not just a market-mediated tendency, then TIPS and series I savings bonds are unique. Nothing else does what they do.
Excellent post, nisiprius! As a (relatively) young person/investor, I consider myself very fortunate to have learned so much from you.

I'd also like to point out that, while not the stated concern in the original post, Series I Savings bonds also offer protection during deflationary periods.
TIPS also offer protection against deflation.
So do nominals. That's the way bonds work.
Of course, but nominal bonds do poorly during inflation higher-than-expected inflation.

I guess I should have made my point more clear:

Series I Savings bonds (and TIPS - I should have mentioned this before - thanks FIREchief) do well during both inflationary periods and deflationary periods.

That is unique.
Last edited by Silence Dogood on Wed Sep 18, 2019 7:41 pm, edited 1 time in total.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Wed Sep 18, 2019 6:44 pm

Silence Dogood wrote:
Wed Sep 18, 2019 5:58 pm
Of course, but nominal bonds do poorly during inflation.
We've had inflation every year since 1955, I think: nominal bonds have had positive real returns over that entire period. Since 1981, the average real return on nominal long-term Treasury bonds has been over 7%.

Perhaps you meant to say something more like "nominal bonds do poorly during periods of higher-than-expected inflation"?
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 7:38 pm

vineviz wrote:
Wed Sep 18, 2019 6:44 pm
Silence Dogood wrote:
Wed Sep 18, 2019 5:58 pm
Of course, but nominal bonds do poorly during inflation.
We've had inflation every year since 1955, I think: nominal bonds have had positive real returns over that entire period. Since 1981, the average real return on nominal long-term Treasury bonds has been over 7%.

Perhaps you meant to say something more like "nominal bonds do poorly during periods of higher-than-expected inflation"?
Correct! I should have worded that better. :oops:

As far as inflation since 1955, I don't think there was inflation in 2009, but your point still stands, of course.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Silence Dogood » Wed Sep 18, 2019 7:54 pm

willthrill81 wrote:
Wed Sep 18, 2019 5:58 pm
Silence Dogood wrote:
Wed Sep 18, 2019 5:52 pm
willthrill81 wrote:
Wed Sep 18, 2019 11:33 am
Silence Dogood wrote:
Wed Sep 18, 2019 11:17 am
I don't invest in things I don't understand.

I don't invest in gold because I don't understand it.
I get that, but I don't think that any of us truly understand stocks or bonds, certainly not why their prices move the way they do.
I am confident enough in my understanding of stocks and bonds to say that, yes, I understand stocks and bonds.

I understand why I can expect a positive real rate of return when I invest in stocks and bonds. I understand the fundamental ideas behind loaning money out/owning a business and why that can result in a positive real rate of return.
I'm sure you do, as do I. But why did the stock or bond markets move the way they did today, or last week, or last month? Such things are beyond our understanding. Certainly we have theories about why they move the way they do, but they are just that, theories, and none of them come close to accounting for everything we see. That's what I'm referring to when I say "truly understand."
I may not understand the daily/weekly/monthly price swings, but I understand why we can expect to get a positive real rate of return.

With gold, I don't understand why the real rate of return should be anything other than 0%.
Warren Buffett wrote:"When the stock temporarily overperforms or underperforms the business, a limited number of shareholders - either sellers or buyers - receive out-sized benefits at the expense of those they trade with. [But] over time, the aggregate gains made by Berkshire shareholders must of necessity match the business gains of the company."

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by CULater » Wed Sep 18, 2019 9:40 pm

The deflation protection offered by TIPS is contingent on holding them to maturity, since at maturity you will receive no less than the original principal. With nominals that's also the case. This assumes you bought your TIPs or nominals when they were issued. But if you are buying and selling TIPs in the secondary market, or you own a TIPs fund (which buys and sells in the secondary market), your result may vary. The direction of nominal and TIPS prices will be similar over the long term: prices will fall when rates rise and vice versa. But when a deflation is being discounted, TIPs will fall in price while the price of nominals will rise. The most notable example of this occurred in 2008, when TIPs prices spiked down while the price of nominal bonds spiked up. So, it's certainly the case that your TIPs holdings could actually underperform nominals in a deflationary scenario. If you want deflation protection, you should own nominal bonds. If you want inflation protection, you should own TIPs.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Angst » Thu Sep 19, 2019 12:13 pm

CULater wrote:
Wed Sep 18, 2019 9:40 pm
The deflation protection offered by TIPS is contingent on holding them to maturity, since at maturity you will receive no less than the original principal. With nominals that's also the case. This assumes you bought your TIPs or nominals when they were issued. But if you are buying and selling TIPs in the secondary market, or you own a TIPs fund (which buys and sells in the secondary market), your result may vary. The direction of nominal and TIPS prices will be similar over the long term: prices will fall when rates rise and vice versa. But when a deflation is being discounted, TIPs will fall in price while the price of nominals will rise. The most notable example of this occurred in 2008, when TIPs prices spiked down while the price of nominal bonds spiked up. So, it's certainly the case that your TIPs holdings could actually underperform nominals in a deflationary scenario. If you want deflation protection, you should own nominal bonds. If you want inflation protection, you should own TIPs.
I've never looked at TIPS as being well-protected against deflation simply because any accrued inflation can be deflated away prior to maturity. (Not an issue with I Bonds.) I will say though that I'm fascinated by this notion that the 2008 TIPS crash was due to a spike of deflation expectations. I hadn't heard that before.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Thu Sep 19, 2019 1:27 pm

CULater wrote:
Wed Sep 18, 2019 9:40 pm
So, it's certainly the case that your TIPs holdings could actually underperform nominals in a deflationary scenario. If you want deflation protection, you should own nominal bonds. If you want inflation protection, you should own TIPs.
Let's be accurate. TIPS will underperform nominals at any time that inflation lags behind the breakeven inflation rate at the time of issue. It doesn't require actual deflation.

That said, many TIPS buyers are primarily focused on preservation of purchasing power. Inflation/deflation/whatever, it won't impact the ability of TIPS to achieve their goals. The limited deflation protection is just a nice bonus for a doomsday long term deflation scenario.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by JackoC » Thu Sep 19, 2019 1:28 pm

willthrill81 wrote:
Wed Sep 18, 2019 10:23 am
Silence Dogood wrote:
Wed Sep 18, 2019 8:49 am
nisiprius wrote:
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
https://gold-standard.procon.org/
The classic gold standard of 1870-1914 included most major world economies, so part of it was also fixed exchange rates. IOW the reason the USD/GBP exchange rate was always the well remembered $4.867/GBP was because the US gold price was always $20.67 per ounce in that period and British one always £3 17s 10½d.

Which is what's misleading about the second longer quote. You can get highly variable values of gold in the past converting back from fiat money value now, but the nominal $ gold price was completely constant then, $20.67 in the US from 1834 to 1934. The average inflation rate in that period in the US, 1870-1914, was -.61%, ie what a $1 could buy in 1870, around $0.76 could buy in 1914, the interaction of relatively constant money supply and growing productivity. Nor were price level variations wide year to year, the height of USD purchasing power in late 1890's meant $0.63 could buy what $1 had in 1870. This isn't remotely like the one direction vast changes in purchasing power since (what $1 could buy in 1870 requires almost $20 now). The big changes in price level in that era were when the gold standard was suspended, like in the Civil War and WWI. And after WWI the system was not a true gold standard.

There are serious problems with a gold standard, especially one only a single country adopted, but the quote gives the wrong idea I believe. Price instability isn't the problem, nor did the gold standard 'destabilize economies' per se. The problems centered around ability to absorb supply/demand shocks from outside the monetary system, and chronic cheating on the rules which were supposed to govern how fixed exchange rates were supposed to work vis a vis central bank interest rates and gold bullion flow from one country to another.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Fri Sep 20, 2019 4:57 am

There are serious problems with a gold standard, especially one only a single country adopted, but the quote gives the wrong idea I believe. Price instability isn't the problem,
Yes it is. If the money supply is constrained by the gold standard, economic downturns tend to be crushing depressions/deflations— look at the economic history of the US from 1879 to 1933 when FDR abandoned the gold standard.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by JackoC » Fri Sep 20, 2019 1:42 pm

Northern Flicker wrote:
Fri Sep 20, 2019 4:57 am
There are serious problems with a gold standard, especially one only a single country adopted, but the quote gives the wrong idea I believe. Price instability isn't the problem,
Yes it is. If the money supply is constrained by the gold standard, economic downturns tend to be crushing depressions/deflations— look at the economic history of the US from 1879 to 1933 when FDR abandoned the gold standard.
No, price instability was not the problem way the quote in earlier post implies. The problem which I stated and you omitted along with my moniker was:

"centered around ability to absorb supply/demand shocks from outside the monetary system, "

In general prices were stable, and years which saw even significant price declines did not necessarily coincide with depressions. For example the price level declined in terms of 1870=$1 to only $0.76 by 1878 (that's -3.30% pa inflation) and GDP growth per capita was positive 1.5%+ in that period. Whereas GDP per capita shrank over 11% in the first two years of the 1893 Panic and the price level dropped at less than 3% pa. The problem was unstable demand in the wake of non monetary shocks, not unstable prices. And again there was not a pure gold standard after WWI, or earlier than 1870, in the US.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Fri Sep 20, 2019 3:00 pm

No, price instability was not the problem way the quote in earlier post implies. The problem which I stated and you omitted along with my moniker was:
Depressions and deflation were a serious problem from 1879 to 1900 or a bit beyond. These were money supply issues that could have been addressed were it not for the gold standard.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by finite_difference » Fri Sep 20, 2019 9:22 pm

CULater wrote:
Mon Sep 16, 2019 8:17 am
For a dollar investor, as far as I know only two things do this: TIPS and series I savings bonds. Nothing else. Nothing.
I believe you did say this, but it's worth emphasizing that TIPS preserve purchasing power best only when held as individual bonds to maturity. If you hold them in a TIPS fund, not reliably so. I-Bonds can only be held as individual securities. And, to reiterate one of the points of the original post, only the money thereby invested is "protected" or "hedged", not one's entire portfolio as some people might assume. Investing in a TIPs ladder or I-Bonds is the equivalent of setting aside a portion of one's portfolio and putting it into a savings account that pays interest that is adjusted by the CPI. Done this way, it is not an investment asset as much as it is an income source and should be treated as such.
Can portfolio visualizer compare Vanguard’s TIPs Fund (VIPSX) to a TIPs ladder?

A TIPS ladder and I-Bonds are too complex and require too much work. I’d rather increase my stock exposure than have to deal with all that.

I would be interested to know how the oft recommended ratio of 50:50 Total Bond:VIPSX compares against a TIPs ladder.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Fri Sep 20, 2019 9:48 pm

finite_difference wrote:
Fri Sep 20, 2019 9:22 pm
CULater wrote:
Mon Sep 16, 2019 8:17 am
For a dollar investor, as far as I know only two things do this: TIPS and series I savings bonds. Nothing else. Nothing.
I believe you did say this, but it's worth emphasizing that TIPS preserve purchasing power best only when held as individual bonds to maturity. If you hold them in a TIPS fund, not reliably so. I-Bonds can only be held as individual securities. And, to reiterate one of the points of the original post, only the money thereby invested is "protected" or "hedged", not one's entire portfolio as some people might assume. Investing in a TIPs ladder or I-Bonds is the equivalent of setting aside a portion of one's portfolio and putting it into a savings account that pays interest that is adjusted by the CPI. Done this way, it is not an investment asset as much as it is an income source and should be treated as such.
Can portfolio visualizer compare Vanguard’s TIPs Fund (VIPSX) to a TIPs ladder?
Not directly.
finite_difference wrote:
Fri Sep 20, 2019 9:22 pm
A TIPS ladder and I-Bonds are too complex and require too much work.
Maybe not. If you're setting up some form of LMP, you only need to set up the TIPS ladder once, with no ongoing work required.

In the accumulation phase, I see little to no benefit for using a TIPS ladder vs. a fund.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Sat Sep 21, 2019 12:01 am

willthrill81 wrote:
Fri Sep 20, 2019 9:48 pm
In the accumulation phase, I see little to no benefit for using a TIPS ladder vs. a fund.
What about the 0.10% - 0.20% ER drag??
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Sat Sep 21, 2019 1:49 am

For example the price level declined in terms of 1870=$1 to only $0.76 by 1878 (that's -3.30% pa inflation)
Well, that is significant price instability/deflation. We had nothing close to that from 2008 to 2016 despite a severe financial crisis. The Fed was not constrained by a gold standard like the treasury was in the 1870’s (before the Fed existed).

The gold standard was used then to create confidence in paper money. It was not conducive to effective monetary policy.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Sat Sep 21, 2019 7:04 am

FIREchief wrote:
Sat Sep 21, 2019 12:01 am
willthrill81 wrote:
Fri Sep 20, 2019 9:48 pm
In the accumulation phase, I see little to no benefit for using a TIPS ladder vs. a fund.
What about the 0.10% - 0.20% ER drag??
My view is that the earliest half of accumulators (i.e. people more than 15 years from retirement) probably don't need TIPS and there is no shortage of long-term bond funds (mutual fund and ETFs) available for less than 0.08% or less available for such folk.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Sat Sep 21, 2019 9:21 am

FIREchief wrote:
Sat Sep 21, 2019 12:01 am
willthrill81 wrote:
Fri Sep 20, 2019 9:48 pm
In the accumulation phase, I see little to no benefit for using a TIPS ladder vs. a fund.
What about the 0.10% - 0.20% ER drag??
True, but outside of an IRA or a taxable account, it's often difficult to build a TIPS ladder. It's easier for retirees, who can transfer 401k, 403b, and 457 accounts into an IRA for the purpose of building a TIPS ladder.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by JackoC » Sat Sep 21, 2019 10:22 am

Northern Flicker wrote:
Sat Sep 21, 2019 1:49 am
For example the price level declined in terms of 1870=$1 to only $0.76 by 1878 (that's -3.30% pa inflation)
Well, that is significant price instability/deflation. We had nothing close to that from 2008 to 2016 despite a severe financial crisis. The Fed was not constrained by a gold standard like the treasury was in the 1870’s (before the Fed existed).

The gold standard was used then to create confidence in paper money. It was not conducive to effective monetary policy.
But again you're editing selectively. In the 1870's and in 1870-1914 period as a whole there was cumulative deflation...but also healthy growth of real GDP per capita. Deflation did not correlate closely with low growth or high unemployment* under that system, so the fact that prices declined significantly in the 1870's is not as relevant as deflation where it happens despite attempts to stop it with monetary expansion like recently.

It doesn't mean a gold standard is superior. But price instability was not the problem with a gold standard, as quote I originally responded to said.

*real GDP growth per capita and avg. unemployment rate differed in the US from 1870-1914 v later periods not always in favor of the true gold standard period, depending what other period you compare it to. However lots of other stuff was going on, and in case of unemployment the definition has arguably effectively changed. Growth was higher in some later periods but some might have been favorable technological applications and demographics. 1870's-1914 per capita real GDP growth would OTOH be great now, but arguably more positive technological/demographic situation then. So whether growth in the period would have been better with a different system is a matter of arguing counter factual scenario's, but the point is that deflation did not mean under-performing economy under that system as it tends to now.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by drummerboy » Sat Sep 21, 2019 11:17 am

Great overview of TIPS and comparing it to other inflation hedge instruments:

https://movement.capital/history-of-tip ... onds-work/

https://movement.capital/how-to-hedge-i ... bond-risk/

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Sat Sep 21, 2019 1:51 pm

vineviz wrote:
Sat Sep 21, 2019 7:04 am
FIREchief wrote:
Sat Sep 21, 2019 12:01 am
willthrill81 wrote:
Fri Sep 20, 2019 9:48 pm
In the accumulation phase, I see little to no benefit for using a TIPS ladder vs. a fund.
What about the 0.10% - 0.20% ER drag??
My view is that the earliest half of accumulators (i.e. people more than 15 years from retirement) probably don't need TIPS and there is no shortage of long-term bond funds (mutual fund and ETFs) available for less than 0.08% or less available for such folk.
Well, to be fair, the question of nominal bond funds vs. TIPS bond funds has nothing to do with the post I was responding to. That said, I would think the long term investor would stand to benefit the most from the inflation protection of TIPS, and the investor in a fund based upon long term nominal bonds would be at the highest risk.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Sat Sep 21, 2019 2:08 pm

FIREchief wrote:
Sat Sep 21, 2019 1:51 pm
To be fair, the question of nominal bond funds vs. TIPS bond funds has nothing to do with the post I was responding to. That said, I would think the long term investor would stand to benefit the most from the inflation protection of TIPS, and the investor in a fund based upon long term nominal bonds would be at the highest risk.
I only mentioned the distinction between TIPS and nominal funds because the ER drag is likely going to be very different for the two: the cheapest long-term nominal Treasury ETF has an ER of just 0.06% whereas the cheapest/only long-term TIPS ETF has an ER of 0.20% and a wide bid/ask spread to boot. So in terms of expense, there's a distinction that I think is worth noting.

In general, I agree that - all else equal - the long-term investor generally faces more inflation risk than a short-term investor.

On the other hand a young accumulator with 15+ working years ahead of them and a bond allocation of less than 20% doesn't face much inflation risk at all. For such an investor, I'd have a hard time imagining that the marginal reduction in inflation risk from owning a long-term TIPS fund vs. a nominal bond fund would justify an extra 0.14% of expense.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Sat Sep 21, 2019 2:23 pm

vineviz wrote:
Sat Sep 21, 2019 2:08 pm
FIREchief wrote:
Sat Sep 21, 2019 1:51 pm
To be fair, the question of nominal bond funds vs. TIPS bond funds has nothing to do with the post I was responding to. That said, I would think the long term investor would stand to benefit the most from the inflation protection of TIPS, and the investor in a fund based upon long term nominal bonds would be at the highest risk.
I only mentioned the distinction between TIPS and nominal funds because the ER drag is likely going to be very different for the two: the cheapest long-term nominal Treasury ETF has an ER of just 0.06% whereas the cheapest/only long-term TIPS ETF has an ER of 0.20% and a wide bid/ask spread to boot. So in terms of expense, there's a distinction that I think is worth noting.

In general, I agree that - all else equal - the long-term investor generally faces more inflation risk than a short-term investor.

On the other hand a young accumulator with 15+ working years ahead of them and a bond allocation of less than 20% doesn't face much inflation risk at all. For such an investor, I'd have a hard time imagining that the marginal reduction in inflation risk from owning a long-term TIPS fund vs. a nominal bond fund would justify an extra 0.14% of expense.
I think you're missing my original point; which was that investing in individual TIPS has a 0.0% ER.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Sat Sep 21, 2019 2:38 pm

FIREchief wrote:
Sat Sep 21, 2019 2:23 pm
I think you're missing my original point; which was that investing in individual TIPS has a 0.0% ER.
Sigh.Yes, I got your point. Investing in individual TIPS has an ER of 0.0% if you buy at auction at hold to maturity.

The point I'm trying to make is that that it would likely be ridiculous and/or impossible for a young accumulator to implement such a strategy.

For one thing, very few 401k and 403b plans (where the vast majority of young investor assets reside) permit the direct purchase of Treasury securities.

For another thing, young accumulators don't need the inflation protection to begin with and would be just as well suited with a long-term nominal Treasury fund. Which can be had at virtually no cost from many firms.

For a third thing, young accumulators would find it very difficult to maintain a constant long-duration over their investing lifetime by buying bonds and holding to maturity. Eventually they'd need to sell on the secondary market or else watch their average duration decline.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Sat Sep 21, 2019 2:56 pm

vineviz wrote:
Sat Sep 21, 2019 2:38 pm
FIREchief wrote:
Sat Sep 21, 2019 2:23 pm
I think you're missing my original point; which was that investing in individual TIPS has a 0.0% ER.
Sigh.Yes, I got your point. Investing in individual TIPS has an ER of 0.0% if you buy at auction at hold to maturity.
Investing in TIPS also has near zero expenses if bought and/or sold in the secondary market. The bid/ask spreads are quite small, and if held for a number of year the equivalent annual expenses approach zero. You say you got my point, but I don't then understand why you were using 0.20% ER as an argument against utilizing TIPS. :confused Your other arguments may or may not be valid. I wouldn't buy into a long term bond fund with today's yield curve, record low rates and near record low inflation; but you and anybody else certainly can if they want to. With respect to the inflation, with free inflation insurance I think TIPS are a much better choice than nominals; especially for a longer term issue.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Sat Sep 21, 2019 3:15 pm

But again you're editing selectively. In the 1870's and in 1870-1914 period as a whole there was cumulative deflation...but also healthy growth of real GDP per capita. Deflation did not correlate closely with low growth or high unemployment* under that system, so the fact that prices declined significantly in the 1870's is not as relevant as deflation where it happens despite attempts to stop it with monetary expansion like recently.
There was massive loss of family farms and family business when the deflationary times of that period increased the real value of debt— falling prices did not support the income to cover the debts. (But woo hoo, the dollars they did not have were backed by gold).

The growth in GDP was from the industrial revolution. When people lost their farms and businesses, they ended up as factory workers and tenant farmers, or employees of corporate farms. The deflations of the era were by no means painless and resulted in a net transfer of wealth from individuals to banks, railroads, and other corporations and large interests.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Sat Sep 21, 2019 3:24 pm

FIREchief wrote:
Sat Sep 21, 2019 2:56 pm
With respect to the inflation, with free inflation insurance I think TIPS are a much better choice than nominals; especially for a longer term issue.
Again, many young investors probably can't get "inflation insurance" for free in their workplace retirement plans and don't need it even if they could get it.

A 30-year old investor with 10% in bonds is simply not in the same situation as a 65-year old investor who is 40% in bonds. Their goals and risks are different, so their investment strategies and tactics should also be different.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by abuss368 » Sat Sep 21, 2019 3:34 pm

One of the best inflation strategies I have read is from David Swensen and his book “Unconventional Success”. I was fortunate to be able to attend one of his lectures!

An equity oriented portfolio with stocks, REITs, and TIPS fights inflation for the reasons he provides.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by ochotona » Fri Oct 18, 2019 9:18 am

Hi all, I'm an infrequent visitor to BH, but the TIPS question brings me here.

It occurs to me that there are better and worse times to buy TIPS. I was inspired by looking at the ratio of TIP : IEF on a chart, and during the GFC and also during 2016 the expectation of inflation became really low, so it was a great time to buy TIPS. You see the same thing on the 10 and 20 year TIP breakeven curves, the breakeven curves actually went into the 1% region.

Basically, the crowd was quite wrong in the short term, they panicked to the downside, and it gave a nice buying opportunity. I suppose you could decide to divest your TIPS in the same way... all other things being equal, sell your TIPS when people think inflation is going to be really high for a really long time.

NOTE - I'm not proposing frequent short-term trading of TIPS at all, I'm just wondering if this is a way for a value-oriented investor to get a better deal when buying and finally when selling. Comments?

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by vineviz » Fri Oct 18, 2019 10:37 am

ochotona wrote:
Fri Oct 18, 2019 9:18 am
NOTE - I'm not proposing frequent short-term trading of TIPS at all, I'm just wondering if this is a way for a value-oriented investor to get a better deal when buying and finally when selling. Comments?
If you’re a better forecaster of future inflation than the rest of the market’s participants , short-term trading of TIPS vs nominal bonds would be profitable.

Otherwise, the only good time to buy TIPS is when you need protection against unexpected inflation and the only good time to sell them is when you need to spend the principal.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Fri Oct 18, 2019 12:24 pm

ochotona wrote:
Fri Oct 18, 2019 9:18 am
I was inspired by looking at the ratio of TIP : IEF on a chart, and during the GFC

Comments?
What is IEF and GFC?
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by willthrill81 » Fri Oct 18, 2019 1:09 pm

FIREchief wrote:
Fri Oct 18, 2019 12:24 pm
ochotona wrote:
Fri Oct 18, 2019 9:18 am
I was inspired by looking at the ratio of TIP : IEF on a chart, and during the GFC

Comments?
What is IEF and GFC?
Great Financial Crisis (i.e. 2008-2009). Don't know about IEF.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by ochotona » Fri Oct 18, 2019 3:02 pm

IEF is iShares 10 year Treasury ETF
TIP is iShares TIPS ETF
GFC is Great Financial Crisis

OK, well know I remeber why I don't come here, because you guys just believe in close your eyes, buy, and hold. See you later, best wishes.

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by FIREchief » Fri Oct 18, 2019 4:32 pm

ochotona wrote:
Fri Oct 18, 2019 3:02 pm
IEF is iShares 10 year Treasury ETF
TIP is iShares TIPS ETF
GFC is Great Financial Crisis

OK, well know I remeber why I don't come here, because you guys just believe in close your eyes, buy, and hold. See you later, best wishes.
I'm not sure what you were expecting. You received three responses, and two were just clarifying your post. TIPS preserve my purchasing power regardless of what inflation does, so speculating about where inflation is going is largely irrelevant to my TIPS investments. This is one of the main reasons that TIPS have such great appeal to some of us. I suppose if I sliced and diced among various forms of fixed income investments, it might be different. But I don't. I'm 100% TIPS other than some liquid cash assets.

Speaking of TIPS, the real yield curve un-inverted two days ago. Not sure why, but some would interpret this as reduced expectations for a recession. 8-)
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Northern Flicker » Fri Oct 18, 2019 5:12 pm

Gold does seem to bring out emotions in people, though I don't see why. It's just a shiny metal. But there's no disputing that a small allocation to gold (10-20%) has significantly boosted SWRs over the last ~40 years, and not just during the 1970s stagflation. Since 2000, gold has significantly outperformed both stocks and bonds. While someone's theory might state that its 'expected' return is zero, that has not been the case, leading me to question whether the theory is valid.
The expected real return of gold is believed to be zero, which has been more or less corroborated by historical outcomes, as noted by Jeremy Siegel:

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by Horton » Sat Oct 19, 2019 12:45 pm

ochotona wrote:
Fri Oct 18, 2019 9:18 am
Hi all, I'm an infrequent visitor to BH, but the TIPS question brings me here.

It occurs to me that there are better and worse times to buy TIPS. I was inspired by looking at the ratio of TIP : IEF on a chart, and during the GFC and also during 2016 the expectation of inflation became really low, so it was a great time to buy TIPS. You see the same thing on the 10 and 20 year TIP breakeven curves, the breakeven curves actually went into the 1% region.

Basically, the crowd was quite wrong in the short term, they panicked to the downside, and it gave a nice buying opportunity. I suppose you could decide to divest your TIPS in the same way... all other things being equal, sell your TIPS when people think inflation is going to be really high for a really long time.

NOTE - I'm not proposing frequent short-term trading of TIPS at all, I'm just wondering if this is a way for a value-oriented investor to get a better deal when buying and finally when selling. Comments?
Your post is very similar to this article by Macrotourist:

https://www.themacrotourist.com/posts/2 ... reakevens/

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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by klaus14 » Sun Nov 10, 2019 5:58 pm

vineviz wrote:
Sat Sep 21, 2019 2:08 pm
FIREchief wrote:
Sat Sep 21, 2019 1:51 pm
To be fair, the question of nominal bond funds vs. TIPS bond funds has nothing to do with the post I was responding to. That said, I would think the long term investor would stand to benefit the most from the inflation protection of TIPS, and the investor in a fund based upon long term nominal bonds would be at the highest risk.
I only mentioned the distinction between TIPS and nominal funds because the ER drag is likely going to be very different for the two: the cheapest long-term nominal Treasury ETF has an ER of just 0.06% whereas the cheapest/only long-term TIPS ETF has an ER of 0.20% and a wide bid/ask spread to boot. So in terms of expense, there's a distinction that I think is worth noting.

In general, I agree that - all else equal - the long-term investor generally faces more inflation risk than a short-term investor.

On the other hand a young accumulator with 15+ working years ahead of them and a bond allocation of less than 20% doesn't face much inflation risk at all. For such an investor, I'd have a hard time imagining that the marginal reduction in inflation risk from owning a long-term TIPS fund vs. a nominal bond fund would justify an extra 0.14% of expense.
I speculate that even for young investors, TIPS are useful hedge for a regime change like the following:
Unexpected Inflation -> interest rates go up -> P/E multiples go down. -> Both nominal bonds and stocks suffer.
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by dcabler » Tue Nov 12, 2019 10:08 am

vineviz wrote:
Tue Sep 17, 2019 3:16 pm
dbr wrote:
Tue Sep 17, 2019 2:30 pm
vineviz wrote:
Tue Sep 17, 2019 2:20 pm
CULater wrote:
Tue Sep 17, 2019 1:01 pm
One important addendum to the bond fund duration-matching strategy is that your average duration target should actually be = Investment Horizon / 2.
This rule of thumb generally comes from people who either don't know how to properly calculate the investment horizon or who are making unacknowledged assumptions about the future path of interest rates.
How do you calculate an investment horizon?
The same way you'd calculate the Macaulay duration of a bond, but here's a simplified walk through. You can refine this by modifying some of the assumptions, but honestly this will be close enough for planning purposes.

The starting assumptions will be that we are making our calculations using real (inflation-adjusted) dollars and that retirement expenses in real dollars will be the same in each year.

First, you simply figure out how many years worth of annual expenses you are planning for. For the purposes of this example let's say it's 30 years, starting at age 70 and lasting until age 99. It's actuarially unlikely that you live to be 99, but let's assume that if you DO live that long that you'd prefer not to be bankrupt. You can work this out however you think is appropriate.

You express each of these annual expenses in terms of years from today (e.g. if you are 60 years old and your first retirement expense is planned for the year you turn 70, then the first annual expense is 10 years; the second is 11 years; and so forth) and take the simple average. For our example, we've got a series of numbers from 10 to 39: the average is 24.5. This is your investment horizon.

Now as it turns out according to the Social Security actuarial life table, a man at age 60 has a life expectancy of 21.61 years and a woman at age 60 has a life expectancy of 24.6 years.

In other words, remaining life expectancy at your current age is a very close approximation of investment horizon under the assumptions above (30 year retirement starting at age 70). It remains very close (within a year or so) for the entirety of retirement, and reasonably close (within 2-3 years) under a wide range of assumptions.
Thanks vineviz - this matches my understanding as well and it's what I'm currently doing. One thing I haven't seen in any of the threads about using TIPs bond funds to approximate a ladder is how to calculate the withdrawal once one switches from accumulation mode to withdrawal mode. I did some crude backtesting, given the limited TIPs data available, and a simple 1/N seems to work well at keeping the real withdrawals more or less constant. But I suspect a PMT type of calculation is probably the more correct method. Any insights?

garlandwhizzer
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Re: Are TIPS really a good inflation hedge? Pros and Cons

Post by garlandwhizzer » Tue Nov 12, 2019 2:10 pm

CULater wrote in the original post:
IMO this is an excellent piece that explains the uses of TIPs, Commodities, Gold, etc., for inflation protection. Each has its own niche of effectiveness but none is perfect in all inflationary situations. A good read IMO if you want to understand your choices for inflation protection and what might work best in your own situation.

Garland Whizzer

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