Theoretically wouldn't a fund help smooth this out a bit as it's constantly rolling TIPS?The reason is that there is a two-month lag in the inflation adjustments. When you buy a TIPS, you will get inflation adjustments for the past two months, and miss the adjustment for the two months before maturity. Since the inflation adjustment for the past two months is known, the price will reflect that; if inflation over those two months was unusually high, the TIPS will trade at a higher price and lower yield than would be expected.I'm not buying an ETF with a 0.25% expense ratio.
Someone correct me if I'm wrong, but I recall reading on the forum that once an individual TIPS is very close (<1 year) to maturity, the inflation indexing is of minimal advantage over, say, a T-Bill?
In the extreme case, a TIPS two months before maturity is equivalent to a two-month T-Bill, since the full adjustment is known. But even for periods longer than two months, the time lag means that the TIPS will not track inflation as well as you might expect; if there is unexpected inflation in the last two months, you will not be compensated for it.
Statistics: Posted by beardsicles — Wed Feb 26, 2025 9:52 pm