Generally speaking, I'm a buy and hold index fund investor, with a long-term time horizon (20+ years). I currently keep ~12% of my account in intermediate-term bond funds. I don't usually make big money moves other than rebalancing my portfolio once or twice a year. I'm basically never trying to "time the market" or make any kind of swing trades, but looking at the response to the recent Fed interest rate hike got me wondering if I should rebalance my bonds over to something like a TIPS fund, or even put some in a Series-I bond for a while, at least until the current rate-hike cycle chills out.

Does a TIPS mutual fund or ETF (like VTIPS) provide the same principle protection as buying the bonds directly and holding to maturity? Does a move like this make sense if I think we're not done with high inflation just yet?

Maybe I'm overthinking the situation. All told, it probably won't have a large affect on my portfolio, since I'm not looking at retirement for another 20+ years. I honestly have very little understanding about how financial instruments work, which is why I just put money into low-cost index funds at regular intervals, and sit on it.

  • TIPS don't protect bond values against interest-rate increases. In fact the current TIPS have coupon interest rates below zero. But otherwise, they can pay big inflation dividends. Now WIW, for instance, is both leveraged and hedged but not actually smooth sailing. Or short-term TIPS would be safer during times of rising interest rates than long-term TIPS.
    – S Spring
    Mar 22 at 4:31

1 Answer 1


Inflation-protected securities give you a guaranteed real (inflation-adjusted) return over the life of the bond. They do that by adjusting the face value of the bond by some inflation factor like the CPI (Consumer Price Index).

Of course, if inflation ends up being lower than what the market predicts, then you'll have less return on your bonds (but will benefit overall from lower inflation).

So they are a hedge against inflation, not necessarily interest rate hikes (they are correlated but not 100%)

I can't speak to the effectiveness of VTIPS, but given that I don't see a price spike in the last month when CPI numbers were higher than in prior years, I don't know that it is an effective hedge against inflation or interest rates.

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