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I have $100,000. I am going to need the money over the next year.

I want to protect its purchasing power relative to inflation and also have some reasonable low risk return.

What would be a good investment option?

I had heard that inflation protected treasury bonds are good for this, but I see that the price of TIPS index fluctuate over time based on inflation expectations.

I want something that I can withdraw easily in a few months as cash (with 30 day notice), and the purchasing power of it cannot decline relative to inflation. In addition, I am assuming I can make some real gain over the period.

Other than ETFs like TIPS, is there a way to get inflation protected treasury bonds for retail investors like me (not a sophisticated investor with experience with complicated financial instruments)? And would that be positive net profit over the time I own them?

What is the real return I can expect under these conditions?

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    Do you plan to spend the 100k in bits and pieces over the next 12 months, or is there one single purchase where you need all of the money at once that will happen at some point within that time period?
    – yoozer8
    Dec 30, 2022 at 4:37
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    "I see that the price of TIPS index fluctuate over time based on inflation expectations." - well, yeah; isn't that what you want? For the value to go up as inflation goes up?
    – D Stanley
    Dec 30, 2022 at 14:08
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    What do you need the money for that you think will be affected by inflation? Inflation is a very broad measure and prices for specific things may change much differently than inflation.
    – D Stanley
    Dec 30, 2022 at 14:10
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    There was a time when certificates of deposit were pretty good at holding value vs. inflation, and accessibility could be maximized by setting up a rotation set with one maturing (and being rilled over if the money wasn't needed) every three months or so. I'm told rates on these have been increasing again, so they might actually be worth looking at. They're certainly not going to lose numeric value; it's just a matter of trying to guess whether they pay enough interest to buffer you against inflation for this cycle, and whether that continues to be true next cycle...
    – keshlam
    Jan 3 at 3:16
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    Then put it in a savings account. Online banks like Ally currently pay 3.3% APY.
    – RonJohn
    Jan 6 at 10:08

6 Answers 6

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One year is very short term in terms of investment horizons. Depending on your anticipated distribution/spending pattern, the most appropriate choice is likely either a high-yield savings account, CD, or combination of both. A CD will lock the money up for some months (I think you can find some for shorter terms than a year, but the rates probably aren't much better than a HYSA), so is only advisable if you know for sure what your schedule is for using the money.

This approach, over the long term, will likely lose purchasing power to inflation. You're not concerned about the long term, though; you want to use all this money within the next year. If inflation is high enough that it eats all your gains (from HYSA/CD interest) in this time, you're probably looking at several dozen dollars at most.

Inflation-beating investments, like stocks/ETFs, will (most likely) outperform in the long-term, but have higher volatility; if you use such vehicles for your 100k now, then 6 months from now you may only have 60k. This type of risk is not appropriate for such a short-term plan.

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  • HYSA is below inflation rate at this point as far as I have checked, so they are negative real return. I want something that has positive real return rate. I need something that is inflation hedged and low risk (and low real return is fine).
    – JJJ
    Jan 6 at 6:56
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    @JJJ Considering your need to withdraw the money at 1 month of notice... High yield savings or some zero penalty for early withdrawal CDs (read the terms carefully) are pretty much your only options. Positive real return is pretty much reserved for assets that are higher risk, especially over a short time horizon. Wanting low risk, easy access, positive real return... we all want that but it doesn't make it exist :P
    – ttbek
    Jan 12 at 9:54
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    @JJJ The TIPS ETF also does not have returns tracking inflation over the short term because you only get inflation value of TIPS by holding to expiry, but TIPS are traded in the market, so the TIPS ETF can change in value a lot more than holding individual TIPS does (you noted this in the question). TIPS also tend to yield less than treasuries, despite tracking inflation (how long do we expect inflation to stay high?). I-Bonds also get locked up for some time and are capped at 10k per year (or 15k with tax return), so they're out too.
    – ttbek
    Jan 12 at 10:02
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You can certainly buy US federal inflation-protected bonds directly from the government. See https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/ . Note that the interest rate on this kind of bond DOES inherently vary over time.

However, these bonds have a minimum holding period. "Can cash in after 1 year. (But if you cash before 5 years, you lose 3 months of interest.)" If you may need the money in less than 12 months, they probably aren't a good choice. And there are limits on how many of these bonds an individual can hold, so they aren't a solution for to parking $100k.

What bond funds (ETF or traditional) give you is the ability to buy and sell at any time, for some approximation of the pro-rated value of the bond at that time. They may also be able to cheat past the per-individual purchase limit; not sure. But you pay a bit for that convenience, and you are subject to market forces as people try to guess what the rates will be in the future and set their buying and selling prices accordingly. So they aren't as much of a guaranteed bet.

Wherever you put your money, you are always trading off between safety, returns, and convenient access.

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    point to note, the OP said they have $100k of investment. However I-Bonds have a $10k limit per SSN per year
    – money.frictionlesspulley
    Dec 31, 2022 at 22:54
  • Good point. I'm not sure whether a mutual fund based on these could cheat past that limit or not. But the OP did ask explicitly about I-bonds,
    – keshlam
    Jan 1 at 13:44
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The only secure investment which guarantees a yield at the inflation rate are I Bonds. Unfortunately, they have a minimum hold time of 12 months (not what you say you want), and maximum purchase amount per year of $10K (not nearly your $100K).

Purchasing TIPS bonds (not a fund, but actual bonds) maturing in July 2023 are only yielding 2.5%!

On the other hand, Treasury Bills are yielding more than 4.6% at this time. You can buy them from your broker (if you don't have one, Fidelity, Schwab and Vanguard will be happy to have you open an account with them). What I'd do is determine when I need each chunk of the money, and buy that much of "52 week" T-Bills maturing just before you need the money.

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    Because of the inflation adjustment feature of the TIPS bonds, that 2.5% yield is a "real" yield. You'll get an annualized rate of 2.5% plus whatever inflation does between now and July. 2.5% above inflation is actually quite good.
    – Brian Borchers
    Dec 31, 2022 at 17:39
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    You can also buy TBills directly from TreasuryDirect.gov
    – TemporaryFix
    Dec 31, 2022 at 17:59
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    @TemporaryFix quite true. But you can only buy them on the auction date, and must manually move them to a broker if you want to sell them before the redemption date. Thus, for OP's scenario, buying from TD is suboptimal.
    – RonJohn
    Jan 1 at 18:22
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    2.5% in real (not nominal) return is pretty good for me. Even 1% real return is good for me. 4.6% nominal rate of T-Bills is below inflation right now, I want positive real return rate.
    – JJJ
    Jan 6 at 6:57
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    @JJJ Yes, the problem is how to offload TIPS when you need the money, because the market rate will often not track the value to expiry. That we can get existing bonds in the market at a 4.6% rate just shows how much the value of those bonds has fallen for those doing the selling right now. If you can hold to expiry, then TIPS are pretty attractive, but you've indicated you may need the money on somewhat short notice.
    – ttbek
    Jan 12 at 10:07
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Nobody knows what the inflation rate will be in the next year. There are estimates, but there are no guarantees. Even people who think they have a good model can't predict the political events, or disasters that can destroy all the estimates.

Investing in stocks involves risk that not only can you lose against inflation, but you can also lose money. Even instruments that have a guaranteed return can't guarantee that they will beat inflation. This is even more so when you want to be able to spend some of the money during the year.

Many of the guaranteed return instruments either have a fixed time period you have to be invested, or a maximum investment amount. Neither of these work in your situation.

While there are risks in stocks, there are even greater risks in crypto. Even precious metals can't guarantee they will beat inflation.

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  • And precious metals are as subject to price volatility as anything else, as demand changes.
    – keshlam
    Dec 31, 2022 at 14:58
  • I don't want to guess the inflation or other asset prices, I want an investment that is hedged against inflation, whatever the inflation ends up being. I want low risk, positive real return investment (and low real return rate is OK under these conditions).
    – JJJ
    Jan 6 at 6:59
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A Treasury Direct account can tie your bank account into an investment in three-month Treasury Bills. Or ticker BIL is available in a stock brokerage account but that ETF could produce small capital gains or losses that need to be reported on taxes.

Well, a six-month Treasury Bill might match the forward inflation rate with the problem being that no one knows what the forward inflation rate will be.

Otherwise, ticker STIP at this point still needs hedging but a hedged STIP would be an expert solution to unknown forward inflation at a time of rising interest rates. For instance, hedge STIP with a sell of a 2-year Treasury future or with a buy of a two-year Treasury rate futue.

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You should seek professional advice.

Failing that, investing large amounts that might need to be withdrawn at short notice generally means putting it on over-night inter-bank deposit.

Why not seek professional advice?

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  • That's partly why you should seek professional advice. Any search engine would show you more than you want to know but you demand details from me and the Internet strangers here? If you wont do your own research, ask your own bank whether a large deposit could better combine a good rate and instant access than through overnight inter-bank deposit. You're welcome to open an account, in which case my fees for explanations will be tiny compared to your benefits. Whatever else, please seek professional advice.
    – Robbie Goodwin
    Dec 31, 2022 at 20:35
  • @keshlam Now that you've got from 'Putting it on overnight inter-bank deposit means nothing to me… ' may we deal with the principle? Including you, everyone who meets the bank's rules can put funds on overnight inter-bank deposit. If you doubt that, why not ask your bank?
    – Robbie Goodwin
    Jan 1 at 1:59
  • @keshlam Where does 'The goal of SE is to have answers ready so folks don't have to search' come from, please? I, for one, believe it's very clear that the SE goal is to answer what's left unclear after contributors have exhausted all other sources. Who doubts that, please say so…
    – Robbie Goodwin
    Jan 1 at 2:06
  • @keshlam Could you be a lot more realistic, please? Either way, can you take yourself to Meta or somewhere similar?
    – Robbie Goodwin
    Jan 1 at 3:21
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    Since you asked: meta.stackoverflow.com/questions/381992/… has some official information about what this system considers a good question and a good answer. There are other resources for additional information. I'll now get out of your hair.
    – keshlam
    Jan 1 at 20:36

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