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Investing Specialists

The Trouble With TIPS (and Some Workarounds)

Interest-rate sensitivity is an issue for TIPS, but there are ways to mitigate it.

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Are you looking for tips on improving your portfolio? As part of Morningstar.com's Portfolio Makeover Week in December, director of personal finance Christine Benz will be making over five real-life portfolios to show how investors of all stripes may streamline and upgrade their holdings. To be considered for a makeover, submit a request to portfoliomakeover@morningstar.com. Include a general description of your situation, including portfolio size, as well as your goals for the makeover. We will alert you if we decide to feature your portfolio on the site and will remove any personally identifying information in any published material.

After languishing at below-normal levels for the better part of a decade, worries over inflation have flared over the past week following the election results. As Morningstar director of economic analysis Bob Johnson noted in this video, an increase in infrastructure spending, accompanied by tax cuts and decreased regulation, all of which President-elect Donald Trump put forth as economic prescriptions in the run-up to the election, could stoke inflationary pressures. As a result, the so-called breakeven rate--the yield differential between nominal (non-inflation-adjusted) Treasuries and Treasury Inflation-Protected Securities--jumped in the days following the election. The break-even rate stood at 1.71% the day before the election; by Nov. 14, it was up to 1.83%. That's an indication that investors think inflation will be moving up. 

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.