If you subscribe to the "print the money and inflation will come" hypothesis, then one alternative to preserve wealth, particularly that tied up in tax-deferred retirement accounts, is the use of Treasury Inflation Protected bonds (TIPs) or one of the TIPs oriented bond funds run by the big families (Vanguard, American Century, TIAA-CREF, etc). These bond instruments are relatively new (since 1997) and somewhat unorthodox, in that the principle value of the bond is adjusted as inflation changes over time. The higher inflation is, the better TIPs are as an investment relative to regular treasuries. I believe the break even at the moment is around 2% inflation rate, so its not hard to envision a scenario where TIPs could be very popular. This leads to the second potential advantage of TIPS right now in the secondary market -- TIPs are infrequently issued and in small amounts, so that the total debt issued in TIPs is puny compared to the overall gov't market. Thus, there is likely scope for premium pricing based on inflation expectations, not just current inflation (and thus current yield).
Perhaps that explains why the total return of many TIP oriented funds was north of 12% last year, and to date this year is exceeding 20% on an annualized basis.
Below are some informative links:
Good overview of these instruments
fool.com
Specs of the instruments
publicdebt.treas.gov
Tax treatment of TIPs
ftp://208.131.225.4/gsrintax.pdf |
