OPINION: As inflation hit the highest level in decades, these assets are better hedges than the Inflation-protected Treasury bonds (TIPS), BrettArends writes.
Investors worried about the risks of inflation to their retirement portfolios have poured money into funds that invest in inflation-protected Treasury bonds, known as TIPS, for obvious reasons.Commodities such as oil, copper and soybeans rather than TIPS are the best insurance against rising inflation, according to an analysis presented yesterday by State Street Global Advisors to a webinar hosted by Pensions & Investments, the pension industry journal.
State Street calculates that since 1970, when interest rates have been rising stocks and bonds have both lost you money in real, inflation-adjusted terms. But commodities have earned 24% annualized and other real assets such as resource stocks, REITs and infrastructure 9%. TIPS, first launched in the late 1990s, are in theory almost the perfect investment for retirees and others seeking safe and dependable income. They are issued by the U.S. Treasury, and like other Treasury bonds are safe from risk of default. You’ll get your money, come hell or high water. Meanwhile, unlike other Treasury bonds, they also adjust your payments to reflect consumer price inflation.
It is in this environment that the latest research is so interesting. It is widely known that inflation has surged this year: The October figure hit 6.2%, the highest in decades. Debate still rages about whether this is a short-term phenomenon caused by the massive dislocations to the world economy from nearly two years of lockdowns, or a longer-term one caused by things like government spending and deficits.
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