Now's the time to start thinking about Treasury Inflation Protected Securities (TIPS).
TIPS are bonds indexed to inflation. As inflation rises, the face value of TIPS also rises thus helping protect investors from the negative effects of rising prices.
Inflation is so... '70s. But like all things '70s, inflation could be back "in" and in a flash.
Let's just say it would be no surprise if current Fed policy unfolds in a two-stage process. This has been the case historically when the Fed has conducted precautionary easing.
Currently we're in the first stage - a period of excessively easy monetary policy that could well stretch until end-2020. That is until the US presidential election-or so.
The second phase is a burst of inflation that forces the Fed to hike rates. This is when TIPS show their strength.
Even in the meantime though they are not exactly wallflowers. So far this year TIPS are up nearly 6% (on a total return basis). And during the crisis? Up a neat 8%.
Monthly Update, June 2019
In June the S&P 500 was up 7.05% even as the Dow Jones gained 7.31%, the Russell 2000 added 7.07% and the Nasdaq increased 7.51%.
As for US bonds, they added 1.26%.
Globally, the MSCI World Index increased 6.63% and the Barclays Global Aggregate Bond Index added 2.22%.
In June the Euro Stoxx 50 added 6.04%% in local-currency (Euro) and 7.91% in USD. Meanwhile, the Topix increased 2.69% in local-currency (Yen) and 3.30% in USD.
