This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

TIPS Can Offer Long-Term Value

Stocks in this article: APOIX ABRZX

Chen figures that inflation will remain subdued for the next two or three years. If that occurs, then TIPS would deliver meager results. But for the longer term, it is difficult to predict what the inflation rate will be. If inflation spikes, TIPS could offer a sound way for investors to protect their purchasing power.

To own TIPS, consider American Century Inflation Protection Bond (APOIX) . The fund has returned 7.1% annually during the past five years, outdoing 82% of competitors. The fund must keep at least 80% of assets in inflation-protected bonds. But when TIPS seem expensive, the managers can shift some assets to conventional bonds. The fund currently has 11% of assets in corporate bonds. "Because of the low yields on TIPS, we believe that investment-grade corporate bonds offer better opportunities," says portfolio manager Robert Gahagan.

Some managers urge investors to shun TIPS altogether. The doubters say that TIPS could produce meager returns in coming years or even slip into the red. Say inflation remains subdued and interest rates increase. Then the principal value of TIPS would rise along with the CPI, but the gains could be offset by the principal losses that all bonds suffer when interest rates rise. Such a scenario occurred in 2006, when interest rates rose. For the year, inflation funds barely broke even.

Because of the uncertainties of the bond markets, TIPS don't necessary provide much protection against inflation, says Scott Wolle, Invesco's chief investment officer of global asset allocation.

"TIPS don't necessarily reflect the higher costs that you see in the grocery store and gas station," he says.

Instead of holding TIPS, investors should invest in commodities, Wolle argues. He says that in the past when inflation spiked, commodities typically rose too. Commodities should continue tracking inflation because higher prices are being driven by growing demand from emerging markets.

Wolle is a member of the team that manages Invesco Balanced-Risk Allocation (ABRZX), a fund that is designed to protect investors from inflation and other market hazards. Under normal circumstances the portfolio has one third of its assets in commodity futures. The managers figure that commodities will rise if inflation spikes.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs