Buy TIPS now or wait (No Inflation Data)

[Chuckanut]

Do you plan to roll over your ladder rungs as each matures, so you maintain the ladder over many years? I'm unsure whether to ladder only as a bridge to SS, or whether to build a longer ladder. I see some here speaking of 30-year TIPS ladders. The rationale of providing inflation protection over the short-medium term would seem to apply for many years, as at any point in the future you will still see a short-medium term ahead of you.

My ladder goes out only 10 years, I imagine I would roll most of them over at this time. I will certainly be looking to add a few 10 years TIPS in 2026. A lot will depend on the fixed rate. 20 and 30 year TIPS might be interesting if I was still in my 50’s or very early 60’s, but I am well past that age.

 

[rkser]

We are retired at 69 & 64, with Short Term Bond ETF - VGSH & Few MYGAs in our Pre Tax IRAs, this is only 14% of our savings.
The 86% of our savings are are all equities - VTI, VXUS & VGT in Taxable & Roths.

YES our Portfolio is VOLATILE, but we are slowly getting used to the Volatility.

That said, the question in my mind is IF to sell VGSH & buy TIPs in the IRAs, but Equities will still continue to be there in Taxable & Roth.

 

[Chuckanut]

The latest PPI report is a 0.7% increase in inflation for January, following a 0.5% increase in December 2025.

I wonder if this will affect the 10 year TIPS that is re-opening tomorrow.

 

[CautaServans]

...it's primary purpose in my portfolio is to create ballast vs the much larger equity mix. TIPS held to maturity protect against unexpected inflation even in the secondary market.

I'm trying to learn about the difference between TIPS and TBills.

Can you explain the above-quoted part of what you're saying? What percentage of a TIPS ladder should be in a moderate portfolio?

I think it might be important for my planning. I have been a saver and have some large CDs coming due in April, May, and September 2026. I am looking to allocate at least 10% into equities in Schwab and find a place for the rest that can be managed easily in a Schwab account. (I am odd and was taught about money from my Depression-era grandmother. So, I have saved, and I take money out of one credit union in a cashier's check and literally drive it to another credit union if I can get a better rate when they mature. I know. I know. ). Also, my workplace retirement fund is 70% equities and 30% among bonds, real estate, and fixed income. I'm much more conventional in my retirement planning and feel like after-tax money I saved is hard-won and tied to emotional things, like making sacrifices in life, so I have a much harder time putting it into stocks, though if I had, over the last eight or so years, I would probably have triple what I have in CDs.

 

[dickoncapecod]

Remember that TIPS are first and foremost TREASURYs with longer rate sensitivity than straight Treasurys of similar maturities. The FIRST thing that happens when inflation spikes and Treasury yields rise is that TIPs prices FALL. Market yields rather than inflation tend to dominate TIPs prices. BUT, if you plan to hold them to maturity, you can take advantage of this by waiting for lower current prices so you can buy more for the same $.
Regards, Dick

 

[CautaServans]

Remember that TIPS are first and foremost TREASURYs with longer rate sensitivity than straight Treasurys of similar maturities. The FIRST thing that happens when inflation spikes and Treasury yields rise is that TIPs prices FALL. Market yields rather than inflation tend to dominate TIPs prices. BUT, if you plan to hold them to maturity, you can take advantage of this by waiting for lower current prices so you can buy more for the same $.
Regards, Dick

Thanks. I'm saving this response!

 

[tulak]

tipswatch.com is your friend, and best to hold until maturity in tax sheltered/deferred accounts.

TIPS are the best way to guarantee an inflation adjusted return of principal, with some added interest as a bonus (IMO).

I take my risk with equities.

 

[Sunset]

Unless you bought on secondary market with some inflation factor already baked in (forgive my terminology), in other words you buy a tips that's already had some appreciation due to inflation factor. THAT part is not immune to deflation. I tend to roll the dice in this regard. I've chosen to buy TIPs with the lowest coupon available, so that most of my projected return comes from inflation factor. This (sorta kinda) gives me a STRIP/ZERO coupon experience where it reduces reinvestment risk along the way.

Any chance you can expand on this a bit, as I'm simple minded when it comes to TIPs.

 

[Sunset]

Maybe I missed the memo. When, in recent history, has deflation of the US$ been an issue or a concern?

The Great Recession:
"Inflation declines from July to November 2008—that is, there is disinflation: Prices are still increasing, but more slowly than before. Deflation, seen from March 2009 to October 2009, is a sustained decrease in the price of goods and services."

A fancy little chart showing it:

Inflation, Disinflation and Deflation: What Do They All Mean?

We often hear about inflation, but what about ‘disinflation’ or ‘deflation’? Those lesser-known terms describe different aspects of changes in prices.

www.stlouisfed.org

 

[tulak]

Any chance you can expand on this a bit, as I'm simple minded when it comes to TIPs.

The inflation factor for TIPS is adjusted based on inflation or deflation, so it can go up or down. If there has been 10% inflation, then the inflation factor will be 1.1 to account for the 10%. When you buy on the secondary market, then the inflation factor is priced into your purchase price. So if you buy, and then we have a period of deflation, the value of your TIPS will decrease and it might not recover. In the 1.1 example, if your inflation factor drops to 0.9, then at maturity, you’ll get the original par value back. In that case, you would have lost (1.0-1.1)/1.1 = ~9% (not accounting for interest payments).

The nice thing about TIPS is that you’re always guaranteed a return of principal even if there is deflation (even though that seems highly unlikely). But this is another reason I prefer to buy at auction, or shortly after auction, since I don’t want to deal with inflation factor.

 

[dickoncapecod]

TIPS are a poor choice for taxable accounts because an inflation adjustment to principal that drives the inflation compensation is TAXABLE in the year it it occurs. Low coupon TIPS can easily have negative after-tax cash flows for years. For the same reason, they cannot provide inflation offsets in real time, only delayed until maturity.

 

[tulak]

Yep, you're paying tax on phantom income. And if the inflation factor decreases, then you paid taxes on income you'll never receive (unlikely, but theoretically possible).

 

[jblack]

I'm trying to learn about the difference between TIPS and TBills.

Can you explain the above-quoted part of what you're saying? What percentage of a TIPS ladder should be in a moderate portfolio?

I think it might be important for my planning. I have been a saver and have some large CDs coming due in April, May, and September 2026. I am looking to allocate at least 10% into equities in Schwab and find a place for the rest that can be managed easily in a Schwab account. (I am odd and was taught about money from my Depression-era grandmother. So, I have saved, and I take money out of one credit union in a cashier's check and literally drive it to another credit union if I can get a better rate when they mature. I know. I know. ). Also, my workplace retirement fund is 70% equities and 30% among bonds, real estate, and fixed income. I'm much more conventional in my retirement planning and feel like after-tax money I saved is hard-won and tied to emotional things, like making sacrifices in life, so I have a much harder time putting it into stocks, though if I had, over the last eight or so years, I would probably have triple what I have in CDs.

Missed this question a few days ago. Not sure if directed specifically to me but good responses from everyone of course. A few topics to unpack.

TIPS are just one of many tools available but I’m attracted to them to help keep my overall stocks/bond mix where I want to sleep well at night, and I like them over bond funds because of the guaranteed principal back at maturity. Plus unexpected inflation protection. Like so many I took a modest hit in 2022 and gained some wisdom on the trade offs I didn’t quite realize I was making as a mostly passive investor in bond funds.

Also to your post…I don’t make a big distinction of pre/post tax in my overall mix. I’ve worked the same for each dollar saved, and they’re all going to my (hopefully long) retirement. Beyond that I do try to plan as efficiently as possible as others have indicated and placed TIPS in my pre-tax portfolio (rollover t-IRA).

 

[OldShooter]

TIPS are a poor choice for taxable accounts because an inflation adjustment to principal that drives the inflation compensation is TAXABLE in the year it it occurs. Low coupon TIPS can easily have negative after-tax cash flows for years. For the same reason, they cannot provide inflation offsets in real time, only delayed until maturity.

Yep, you're paying tax on phantom income. And if the inflation factor decreases, then you paid taxes on income you'll never receive (unlikely, but theoretically possible).

OK, so TIPS have negative aspects. No news there. Obviously, you guys must have identified an inflation-protected asset that is superior. Enlighten us. What is it?

 

[dickoncapecod]

OK, so TIPS have negative aspects. No news there. Obviously, you guys must have identified an inflation-protected asset that is superior. Enlighten us. What is it?

Solid corporates at 7+%, solid preferreds at 8+%, closed end bond funds at 12+%. If you live in fear of hyperinflation, the best bet is money market funds or floating rate Treasurys that reset weeklywith 3mo bills + a spread. Almost every flavor beats TIPs.

 

[tulak]

OK, so TIPS have negative aspects. No news there. Obviously, you guys must have identified an inflation-protected asset that is superior. Enlighten us. What is it?

If it’s not clear, I’m a TIPS fan. There’s no other investment that I know of that gives you a guaranteed inflation adjusted return of principal. That alone is enough reason for me to invest in TIPS.

I’m not a trader and if others prefer alternatives, go for it. I’ll stick with TIPS.

 

[big-papa]

If it’s not clear, I’m a TIPS fan. There’s no other investment that I know of that gives you a guaranteed inflation adjusted return of principal. That alone is enough reason for me to invest in TIPS.

I’m not a trader and if others prefer alternatives, go for it. I’ll stick with TIPS.

100% likewise.

They're not some sort of magical investment that knows your personal inflation rate, though I suspect that most people don't know the difference between their own personal inflation rate and changes in their consumption patterns over time nor are they willing to take the time to figure that out. Shock of shocks, they're taxed, unless you're in a 0% bracket or hold them in a Roth. In the rare deflationary episode, their current value has a floor which just might be lower than what you originally paid for them, especially if you purchased them on the secondary market. And that won't matter if you never sell any TIPS before they mature.

None of which makes TIPS without value. Some of these are really strong reasons not to go "all-in" on TIPS, but going all-in on anything is usually considered a bad idea anyway. DW and I each hold ladders that were purchased for 30 years of income. I also hold another one that acts as a bridge to SS. All of these are held in our TIRAs. Our income for nondiscretionary expenses comes from TIPS, SS, and dividends thrown off by the stock fund we have in our taxable account. We set this up to make cash flow for everyday spending just about as automatic as we could make it and whose magnitude, at least directionally, will rise along with our expenses. So far, it's actually exceeding our expenses, but we know that's never guaranteed. It's doing what we intended it to do. We still have stock in our TIRAs (which we're Roth converting over time) but most of our stock is in our taxable brockerage account - and if any large lumpy expenses come along for any reason at all, we sell shares. We also hold I-bonds which will mature over a 10 year period, starting in our mid 80's.

TIPS, like most any other investment, is just another tool in your toolbox that's available, and it has certain properties that might make it attractive to some people. It certainly was the case for us.

Cheers.

 

[Lorenzo]

I am not (yet?) invested in TIPS, but one thing that DW and I are pondering is what a "guaranteed inflation adjusted return of principal" is worth to us. For a number of years before retirement, my income did not keep pace with inflation. DW's salary as a teacher has never kept up with inflation. We have never had any investments that were guaranteed--no CDs, no T-Bills. We're considering all that now, but it also occurs to us that there are no guarantees in life that have no cost. We're generally risk-averse people, but as realists we recognize we have managed to live with various financial risks our entire working lives, trying to balance them with opportunities for return. So now in retirement we're asking ourselves whether we really need a US-government backed guarantee of some fraction of our total savings keeping up with some measure of inflation? Or are there, as others have pointed out, better opportunities out there for not much more risk than we are accustomed to? A diversity of bonds and a money market--do we really need more?

FIRECalc indicates our savings are sufficient to withstand average inflation, and might even withstand a 1970s-style bout of stagflation. Even if that happened, I think we could tighten the belt just as my parents did back then. Do we really need to buy an insurance policy against that? I just don't know.

 

[big-papa]

I am not (yet?) invested in TIPS, but one thing that DW and I are pondering is what a "guaranteed inflation adjusted return of principal" is worth to us. For a number of years before retirement, my income did not keep pace with inflation. DW's salary as a teacher has never kept up with inflation. We have never had any investments that were guaranteed--no CDs, no T-Bills. We're considering all that now, but it also occurs to us that there are no guarantees in life that have no cost. We're generally risk-averse people, but as realists we recognize we have managed to live with various financial risks our entire working lives, trying to balance them with opportunities for return. So now in retirement we're asking ourselves whether we really need a US-government backed guarantee of some fraction of our total savings keeping up with some measure of inflation? Or are there, as others have pointed out, better opportunities out there for not much more risk than we are accustomed to? A diversity of bonds and a money market--do we really need more?

FIRECalc indicates our savings are sufficient to withstand average inflation, and might even withstand a 1970s-style bout of stagflation. Even if that happened, I think we could tighten the belt just as my parents did back then. Do we really need to buy an insurance policy against that? I just don't know.

Probably the last decade and a half, my annual salary increases routinely were below the official inflation rate as well. My variable compensation (bonuses, RSU's, etc.) though usually made up for that. But, and this is important, 100% of that went directly to savings for retirement. So, like you, we managed to still live just fine and pay baseline bills with a salary that wasn't keeping up with inflation.

We ultimately did purchase TIPS ladders: 2 that were 30 years long and a third was that is a bridge to SS for me that was 6 years long when I purchased. Today, my wife's actual SS + Dividends from stock in our taxable account are what we use for daily living. We'll sell stock for any sort of larger, lumpy expenses as needed. Most importantly to us, though, is that our spending capacity is now increasing at close to the rate of inflation now.

And, for us, it turns out that this increase in income is rising faster than our increase in actual spending is. So I'd say that it's more than an insurance policy for us. We now have enough data in retirement about our regular spending patterns that I'm comfortable setting a max target in our checking account - if, by mid year, we exceed that target, we'll peel off some of that and reinvest it back into our taxable brokerage account. If that starts to look very consistent over a few years, we'll probably make some adjustments in the actual withdrawals from our portfolio and/or dividend reinvestments.

The thing to remember is that few people's annual spending increases are going to match an official CPI-U number. I don't live in an "average urban area". I don't consume the same basket of goods in the same proportions as is used to calculate CPI-U. I do know that my consumption patterns also vary, which means it would take some effort to tease out how much of the change in our spending is caused by consumption changes and how much is caused by the changes in prices per unit of consumption. Our mortgage, which isn't subject to inflation, will some day be paid off, resulting in a step downward in baseline spending. Our LTCi premiums now have a "no more increases" rider on them which now makes them no longer subject to inflation. etc. etc. etc....

YMMV

Cheers

 

[tulak]

I take my risk with equities, which has a greater potential for upside than bonds, treasuries, etc.

TIPS let me invest more in equities, without worrying about income. I have 8-10 years in a TIPS ladder for base level income. It’s quite possible this is overkill, but if so, then that’s a good problem to have. As others have noted, TIPS are insurance in case SHTF.

If I wasn’t balancing TIPS with equities, then I’d likely have a different opinion. But I don’t see much point in trying to get an extra few percent yield in fixed income, with additional risk, when equities offer more.

As for personal inflation vs CPI, another thing I don’t worry about. My TIPS ladder is insurance if markets - both bond and equity - goes sideways. If that happens, then things are bad and I’ll likely be more cautious with my spending anyways, but at least I won’t be eating cat food.

 

[dickoncapecod]

I am not (yet?) invested in TIPS, but one thing that DW and I are pondering is what a "guaranteed inflation adjusted return of principal" is worth to us. For a number of years before retirement, my income did not keep pace with inflation. DW's salary as a teacher has never kept up with inflation. We have never had any investments that were guaranteed--no CDs, no T-Bills. We're considering all that now, but it also occurs to us that there are no guarantees in life that have no cost. We're generally risk-averse people, but as realists we recognize we have managed to live with various financial risks our entire working lives, trying to balance them with opportunities for return. So now in retirement we're asking ourselves whether we really need a US-government backed guarantee of some fraction of our total savings keeping up with some measure of inflation? Or are there, as others have pointed out, better opportunities out there for not much more risk than we are accustomed to? A diversity of bonds and a money market--do we really need more?

FIRECalc indicates our savings are sufficient to withstand average inflation, and might even withstand a 1970s-style bout of stagflation. Even if that happened, I think we could tighten the belt just as my parents did back then. Do we really need to buy an insurance policy against that? I just don't know.

Good assessment. The cost of not just a government guarantee BUT ALSO "protection" from inflation is extreme. Whether it makes sense for you to pay that extreme cost in a portion of your portfolio is obviously up to you. But an informed decision requires that the investor understands 1) the mechanism of the inflation compensation offered by TIPs and 2) the consequent taxes and cash flows. It's my opinion that folks who only look at pop articles and the published yields of TIPs can easily make painful choices.
1. TIPs are government securities. Their market prices rise and fall with interest rates. Pull up a chart of TIP that is a portfolio of TIPs. When inflation skyrocketed and Fed tightened '22-'24, TIP FELL from 130 to 105. One can always duck behind "I never sell," but at least observe that the time to buy TIPs at the lowest prices is when inflation PEAKS and falls ---- not before inflation rises. Expected?
2. The coupon rate on TIPs does not change. You are compensated for inflation by additions to the principal, the final payment --- and those dollars are not captured until maturity. But here is the killer:
Imagine a TIP like the current 10 year with a coupon at 1.88%. Let's see what happens when that $100,000 bond gets compensated for (wow!) 5% inflation. This is rough for illustration.
First year (say) 100,000 × .0188 gives you a cash flow of $1880
Second year 105,000 × .0188 gives you $1974, so that year you get an extra $94
BUT BUT BUT you must ALSO pay taxes on the $5000 add-on that year. If you are only in a 12% bracket, your tax will be $600. So your "inflation protecting" TIP caused you to have a NEGATIVE CASH FLOW of $506. Is that what you had in mind or expected?
Regards, Dick

 

[tulak]

Just to point out, it’s not like TIPS don’t pay you anything. You’ll likely end up with 4-5% nominal yield with 10 year TIPS. Not much different than equivalent treasuries. Sure, you can start looking at other fixed income instruments, but those start behaving more like equities without the upside. The last thing you want when equities are dropping.

 

[tulak]

Dick, that’s why I buy TIPS in tax sheltered accounts and hold until maturity. Problem solved.

Agree that you should understand what you are buying and why. For me, it makes sense as part of my overall portfolio and investing style.

 

[OldShooter]

... TIPS are insurance in case SHTF. ... But I don’t see much point in trying to get an extra few percent yield in fixed income, with additional risk, when equities offer more. ...

Exactly. I also buy fire insurance on our homes without worrying too much about the premium paymensts. We hold enough in TIPS (70/30 AA) to weather even a large inflation storm. Fortunately we hold them in tIRAs so we don't have the cash flow issues but even if we had to pay the taxes that is simply a prepayment anyway, money that would go to Uncle at some point.

 

[dickoncapecod]

Exactly. I also buy fire insurance on our homes without worrying too much about the premium paymensts. We hold enough in TIPS (70/30 AA) to weather even a large inflation storm. Fortunately we hold them in tIRAs so we don't have the cash flow issues but even if we had to pay the taxes that is simply a prepayment anyway, money that would go to Uncle at some point.

Of course there is a critical difference between TIPs "insurance" and fire insurance:
AS THE POST YOU QUOTED NOTES: there are many alternative fixed income and equity products that offer greater protection against inflation ---- while there is no serious alternative to paying for fire insurance.
Regards, Dick