Both TIPS and nominal bonds of the same duration have the same expected return at the time of purchase....favor TIPS fund over a bond ladder?
If inflation is higher than expected during the time you own the bond, TIPS will provide a higher return. Vice versa for the nominal bond.
The inflation rate that would provide the same return is called the "tips inflation breakeven rate" Google this to learn more.
The nice aspect of TIPS is you are protected against unexpected higher inflation at no cost. This is why many people favor TIPS over nominal bonds when building a ladder.
Statistics: Posted by dogagility — Fri Nov 15, 2024 6:13 am