Expert insight
Talking TIPS with Jeff Johnson
March 18, 2025
In a recent interview with Yahoo Finance, Jeff Johnson, head of fixed income product in Vanguard Portfolio Review Department, shared insights on the factors investors should consider before adding Treasury Inflation-Protected Securities (TIPS) to their portfolios.
Johnson said that TIPS are a potentially attractive asset class for investors looking to hedge inflation risk in their portfolios and cited several key considerations:
- The risks. Investors should know the risks before deciding to pursue any investment strategy. The main risk with TIPS is interest rate risk. When interest rates rise, TIPS prices can fall.
- Expected inflation rate. TIPS could make a lot of sense when inflation exceeds expectations.
- Strategic role in a portfolio. TIPS can act as a form of insurance against potentially higher inflation and can be a strategic component of a portfolio for investors who consider inflation to be a risk. Like insurance for any potentially adverse event, it’s crucial to hold TIPS prior to any spike in inflation. It might be too late if TIPS are added to a portfolio after inflation occurs.
- Time horizon. For those looking for a hedge against inflation in the next two to three years, Johnson recommends considering a shorter-term TIPS option. But investors should consider a longer-term TIPS strategy if they are thinking about saving for an extended period of 10 years or more.
For more about Johnson’s perspective, watch the full interview. Video length: 5 minutes 29 seconds
Related items:
- Pro TIPS: Take into account inflation-protected bonds (article, issued May 2024)
- Portfolio construction: Principles inform possibilities (article, issued August 2022)
- Examining TIPS as investors hedge against inflation (article, issued June 2022)
Notes:
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Investments in bonds are subject to interest rate, credit, and inflation risk.
The Short-Term Inflation-Protected Securities ETF invests in bonds that are backed by the full faith and credit of the federal government and whose principal is adjusted periodically based on inflation. The fund is subject to interest rate risk because although inflation-indexed bonds seek to provide inflation protection, their prices may decline when interest rates rise and vice versa. The fund's quarterly income distributions are likely to fluctuate considerably more than the income distributions of a typical bond fund. Income fluctuations associated with changes in interest rates are expected to be low; however, income fluctuations associated with changes in inflation are expected to be high. Overall, investors can expect income fluctuations to be high for the fund.
