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The 3 Best TIPS ETFs To Protect Against Inflation

Last Updated: September 27, 2020 No Comments – 2 min. read

TIPS (Treasury Inflation-Protected Securities) are treasury bonds linked to inflation. Here we’ll look at the best TIPS ETFs.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Introduction – Why TIPS?
  • The 3 Best TIPS ETFs
    • VTIP – Vanguard Short-Term Inflation-Protected Securities ETF
    • SCHP – Schwab U.S. TIPS ETF
    • LTPZ – PIMCO 15+ Year US TIPS Index Fund
  • Where To Buy These TIPS ETFs

Introduction – Why TIPS?

TIPS stands for Treasury Inflation-Protected Securities. These are treasury bonds issued by the U.S. government that are indexed to inflation, protecting investors from a decline in purchasing power of the U.S. Dollar. As inflation rises, so too does the principal value of the TIPS bond.

TIPS are more correlated with stocks than treasury bonds but less correlated than corporate bonds. Like “normal” bonds, TIPS are issued at different maturities, and there are various ETFs available at different lengths. Note that while the principal will keep up with inflation, the interest payment may not. Moreover, while the par value rises with inflation, it falls in periods of deflation.

TIPS are not ideal for income investors because their interest payments are usually less than those of government and corporate bonds. The primary purpose of TIPS is inflation protection. As such, TIPS can be a crucial part of an all-seasons portfolio.

Below we’ll look at the best TIPS ETFs.

The 3 Best TIPS ETFs

Below are the 3 best TIPS ETFs, sorted by shortest to longest maturity.

VTIP – Vanguard Short-Term Inflation-Protected Securities ETF

Investors seeking short-term TIPS, with less interest rate risk, can use the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP). The fund seeks to track the Barclays Capital U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Years Index. This ETF has a weighted average maturity of 2.8 years and an expense ratio of 0.05%.

SCHP – Schwab U.S. TIPS ETF

Slightly longer than VTIP above – and more popular – is the Schwab U.S. TIPS ETF (SCHP), which seeks to track the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index. This ETF has a weighted average maturity of 8.2 years and an expense ratio of 0.05%.

LTPZ – PIMCO 15+ Year US TIPS Index Fund

Investors seeking long-term TIPS can use the PIMCO 15+ Year US TIPS Index Fund (LTPZ), which has a weighted average maturity of 23.8 years. The fund seeks to track the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index and has an expense ratio of 0.20%.

Where To Buy These TIPS ETFs

All the above TIPS ETFs are available at M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.


Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

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About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

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