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Clients and TIPS - what to do?

Many of your clients may hold TIPS in their portfolios. If so, what have they been saying to you lately about this investment?

Introduced by the Treasury in 1997, inflation protected securities (TIPS) became very popular, attracting billions of investment dollars. They performed well in the early 2000’s and, prior to 2013, had only one losing year in 2008.

More recently, investors saw many factors encouraging investment in TIPS, starting with the post-2008 stimulus and the bond buying program of the Fed. Some pundits foresaw a boom in the economy and prices with inflation increasing both strong supporters of investing in TIPS.

Instead, low inflation and low interest rates have been continuing, with weakness in commodities suggests continued low inflation. These contributed to a decline in the value of TIPS which decline was exacerbated by the Fed’s comments regarding tapering of the bond buying program sometime in the near future.

Investors have seen the value of their TIPS investment decline by over 7% during 2013 – far worse than bonds in general (down only about 2%) – and many investors have been pulling out of their TIPS investment or at least reducing them. When a client shows concern about TIPS holdings what do you tell them to do? What considerations would support either holding or selling at this time? 

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