Another TIPS question

[dobig]

Is it wrong of me to think a dividend etf such as SCHD with a CAGR of 11% is a better inflation hedge than TIPS? I have no idea how many discussions on TIPS I've read or how many times I've had a TIPS auction pulled up on my Fidelity page but every time I get close to making a purchase I get second thoughts. Yesterday morning I almost pulled the trigger on some TIPS at auction with extra money I had sitting around but ended up splitting it between DGRO and SCHY (international version of SCHD). Are there inflation scenarios where TIPS would be a better route than growing dividend etfs?

 

[Trailwalker]

I use stocks for money that is intended for the long term. The problem is that SCHD isn't guaranteed to be a future inflation hedge in the short term or even intermediate term. It can go up or might go down. TIPs bought at auction and held until maturity are guaranteed by the U.S. government to maintain purchasing power with a small coupon interest payment as a bonus. Treasuries are guaranteed to pay a fixed rate of interest that may do better or worse than inflation rates. Both Treasuries and TIPs are very conservative investments with limited floors and ceilings.

 

[ncbill]

Yep, nobody who favored a dividend approach worried much about dividends being reduced or eliminated.

Until the Great Recession came along & both of the above happened.

 

[RetMD21]

The 2.243 real yield on today's 10 year tips auction looks good to me. Apparently it is the highest since 2009. The inflation break even is 2.4%.I can't tell the future but this sort of inflation graph makes me cautious about nominal bonds

 

[Trailwalker]

It looks good to me too. The five year TIPS in 10/23 had a fixed yield of 2.44, but I consider anything above 2.0 very good.

5 Year TIPS

 

[audreyh1]

The 2.243 real yield on today's 10 year tips auction looks good to me. Apparently it is the highest since 2009. The inflation break even is 2.4%.I can't tell the future but this sort of inflation graph makes me cautious about nominal bonds View attachment 54027

And that graph doesn’t even include 2021!

 

[GravitySucks]

Yesterday’s 2.4% inflation expectation seems way too low. I’m betting on the over. If I’m wrong it’ll be cheap inflation insurance.

I’m over weight on TIPS but my inflation worries are way higher than my deflation worries.

 

[RetMD21]

We got a 2.403% real yield on the 30 year TIPS at auction today. The highest in 23 years!

 

[aja8888]

We got a 2.403% real yield on the 30 year TIPS at auction today. The highest in 23 years!

Great, if I knew I was going to around 30 years from now, I would have bought too!

 

[Chuckanut]

We got a 2.403% real yield on the 30 year TIPS at auction today. The highest in 23 years!

Congratulations.

 

[RetMD21]

None of us are guaranteed 30 years or even a day but there's a good secondary market for TIPS. If as expected, the real returns for new issues decline the value of these bonds will increase.

 

[Lsbcal]

If rates go up?

 

[RetMD21]

With the real rate at the highest in 23 years it seems unlikely but the bonds could decline relative to the newer higher return ones.