Now This is Just Utterly Stupid. Some TIPs…

TIPS ETF

Over the last few weeks, I’ve discussed various tips on investing due to rising inflation. This week’s Producer Price Index and Consumer Price Index numbers came in much higher than expected. 

Now, let’s keep in mind that both indices are not accurate inflation measures. They are measurements based on nominal price movements and cost of living. As a result, they’re very out of date. They fail to bring the positive impacts of technological deflation into the picture. They also ignore the increased standard of living that most people have enjoyed over the years.

I’ve talked about basic materials stocks. I’ve discussed the inexpensive banks. I’ve noted that Bitcoin is a very solid long-term investment that will remain volatile. And I’ve even mentioned deflationary technologies like artificial intelligence, robotics, and semiconductors

But then I read an article that changed my day. An author at Seeking Alpha wrote an article called “The Six TIPs ETFs that could protect your portfolio from inflation”.

TIPS are short for U.S. Treasury Inflation-Protected Securities. These products are designed to pay investors a small coupon payment plus whatever inflation figure comes in for the year. 

Now, here’s where this gets stupid. Five-year bonds don’t pay a whole lot. Right now, a five-year treasury bond pays about 1.2%. And while there might be some inflation protection from these TIP, there are ETFs involved in eliminating the actual coupon payment. Why? Because these ETFs charge management fees. 

The iShares TIPS Bond ETF charges 0.19% annually. So, you’re going to pay one-sixth of your bond return to a management fee. 

Just buy the stupid TIPs bonds. You can get them through pretty much any bank. This product is so idiotic, and rip-off that it makes the UVXY (a broken volatility product) look like vitamins.

There’s Danger In These Parts Too

There’s another thing that I want you to keep in mind. If and when the bond markets rally, these ETFs can become very poisonous. In March 2020, during a safe-haven rally, the sudden economic weakness showed that investors anticipated a potential recession. (It was a very short-lived bear market if you recall). There is not much diversification in a TIPs ETF, so if inflationary expectations are suddenly met with a sharp drop in inflation and economic expectations, a TIPs ETF can crash 4% to 5% pretty fast. 

You’re better off just investing in the individual TIPs bonds or just focusing on the assets that I mentioned above. Just because you read a silly headline doesn’t mean that you have to make a silly decision with your money.

I’m off to watch the Baltimore Ravens play the Miami Dolphins in Miami. Unfortunately, they’re calling for rain…

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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