TIP Securities have been around only since 1997, placing them a time period with only relatively tame levels of inflation. That being said, the need for inflation protection is very relevant, and investors now have access to five TIPS ETFs. They give investors a choice among broad based, intermediate, short-term, and long-term durations.
Asset allocation, the practice of spreading a portfolio across different investments to diversify risk, failed miserably in 2008 when almost all asset classes fell together. So is asset allocation dead? Yes, and no.
One of the side-effects of the recent market tumult is the drop-off in demand for government securities tied to inflation or TIPS.
George is nearing retirement and doesn’t want a downturn in the market to force him into working for another couple of years. On the other hand, George is worried about inflation and its impact on his standard of living while retired.
Max and Erma are well on their towards saving for retirement with a well-diversified portfolio. Although they have taken a hit in the recent bear market, they still have a substantial nest egg and want to protect their investments against any inflation threats that may arise from the massive monetary and fiscal stimulus actions taken by the U.S. and other large economies.