I’m not even retired and I’ve been buying long-term inflation-protected U.S. Treasury bonds in my 401(k) with both hands. Thanks to the recent turmoil in the...
I’m not even retired and I’ve been buying long-term inflation-protected U.S. Treasury bonds in my 401 with both hands.
TIPS are the forgotten cousins of the Treasury market. Their coupons and price adjust to reflect inflation, so that anyone who buys a bond and holds it until it matures is guaranteed a rate of return in “real,” inflation-adjusted, purchasing power terms. John Coumarianos, a financial adviser in Northvale, N.J., says when he tries to talk about TIPS with clients “their eyes glaze over.”
Last week the yield on TIPS bonds spiked to 2% across the board, from the short-term bonds all the way out to the 30 years. In other words, you could buy bonds that guarantee you a return of inflation plus 2% a year for a full 30 years Last year everyone was agog for “I bonds,” a TIPS variant also offered by Uncle Sam, which were paying inflation plus 0%. Now TIPS are paying 2%.
But we don’t buy Treasury bonds for one year. We usually own them for a decade, or several decades. And when we look at those numbers the past becomes startling. Since 1928, the median return from a portfolio of 10 Year Treasurys over any given 10-year period was just 0.85% a year above inflation, and the median return over any given 20 year period was just 0.98%.
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