Let’s compare the Vanguard Inflation Protected Bond Fund (VIPSX) to the Vanguard S&P 500 Fund since the VIPSX inception of 2011.

This is a GREAT time to compare funds given the insanity of the markets from 2000 until today.

I mean, think about it, the start of the millennium the markets fell 9, 11 and 22% consecutively. That was a decline on part with the 73 and 74 carnage. But people forget, it wasn’t until March 2003 where teh market finally bottomed out.

Then we had a couple nice years…and BOOM! Oct 2007 through March 2009 comes around and wipes out any gains that were had from 2003 .

From March 2009 has been an almost unstoppable bull market since. HUGE gains were had.

So, the first 18 years of this century give us LOTS of wonderful information to analyze which may be helpful for your own portfolio design….(read more)

HOW TO: Hedge Against Inflation

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Have you ever considered investing in inflation-protected bond funds? With the constant fluctuation in the market, it’s important to explore different investment options to safeguard your money. Inflation-protected bond funds, often referred to as Treasury Inflation-Protected Securities (TIPS) funds, are specifically designed to protect investors from the impacts of inflation. Let’s explore whether or not investing in these bond funds is a viable option for you.

Before delving into the potential benefits of these funds, it’s essential to understand inflation and its effects on your investments. Inflation refers to the gradual increase in prices of goods and services over time. This results in a reduced purchasing power of your money. For example, if the annual inflation rate is 3%, the purchasing value of $100 will decrease to $97 the following year. Therefore, it becomes imperative to find investment avenues that can provide a hedge against inflation.

Inflation-protected bond funds aim to protect investors’ principal value and provide a return that outpaces inflation. These funds invest primarily in TIPS, which are government-issued securities that adjust their value in response to changes in the Consumer Price Index (CPI), a commonly used measure of inflation. When inflation rises, the value of TIPS increases, providing investors with a higher return.

One of the key advantages of inflation-protected bond funds is their ability to offer real returns. Unlike traditional bonds, which may offer fixed interest rates, TIPS funds can adjust their interest payments to account for inflation. This ensures that your investments keep pace with rising prices and maintain their purchasing power. Moreover, TIPS funds have historically performed well during periods of high inflation, making them an attractive option for risk-averse investors.

Another advantage of these bond funds is that they are backed by the government, making them highly secure. Since TIPS are issued by the U.S. Treasury, investors can have peace of mind knowing that they are investing in a low-risk asset. Additionally, these funds can be purchased at relatively low costs, making them accessible to a wide range of investors.

While inflation-protected bond funds have several benefits, they also have a few drawbacks to consider. One limitation is that their returns may not always keep up with inflation. Though TIPS aim to outpace inflation, there may be instances where the return falls short. Additionally, these funds tend to have lower yields compared to traditional bonds due to their lower interest rates. This could affect the overall potential for income generation in your investment portfolio.

Ultimately, the decision to invest in inflation-protected bond funds depends on your financial goals and risk tolerance. If you seek stable and secure returns that can effectively protect your investments against inflation, TIPS funds might be a suitable option. However, if you are willing to take on higher risks to potentially achieve higher yields, other investment avenues may be more appropriate.

It’s essential to consult with a financial advisor or conduct thorough research before investing in inflation-protected bond funds. This will help you make an informed decision based on your specific financial situation and objectives. By carefully evaluating the pros and cons of these funds, you can determine whether they align with your investment strategy and contribute to your long-term financial success.