I think Sharpe is highlighting this as a problem for large institutional investors and/or retail funds (e.g. target date funds). If these investors replaced their nominal bond holdings with TIPS, it would distort the market and push up the price of TIPS, thereby creating large premiums.longinvest wrote: ↑Sun Jan 21, 2024 9:50 am Far more important is the fact that this calls into serious question the ability of a significant proportion of investors to use (1) Ibonds and/or TIPS for a safe security and (2) a world bond/stock portfolio for a risky, higher-return portfolio. But that is a subject for another time and place.
However, as a small-time, individual investor, if I can buy TIPS at a discount and IBonds at a positive fixed rate, then why not? The global aggregate bond market does not match my personal duration, and I don’t have nominal future liabilities (just real liabilities that track inflation).
Stocks, on the other hand, are a whole other ballgame. The future earnings and cash flows of a business are uncertain, so holding the “market” makes a lot of sense here.