PLANADVISER - January/February 2022 - 12
trends
Inflation Hedge
Which is the better choice: TIPS or real assets?
ANNUAL inflation grew to 7% this past December, a pace not seen
since June 1982, according to the Department of Labor (DOL).
With that rapid escalation, advisers' clients may be seeking to
add inflation-hedging components to their portfolios. And
advisers have several appropriate options, experts say.
According to Jim McDonald, Northern Trust executive
vice president and chief investment strategist, investors
will have to decide where they want their inflation protection.
For plans that want it within fixed-income assets,
preferring to preserve more of their risk asset budget, they
might be limited to using only Treasury inflation-protected
securities (TIPS).
For investors with more flexibility, however, there might
be better options. Real assets such as natural resources,
real estate and infrastructure all present better return
opportunities, McDonald says. The advantage of using real
assets instead of TIPS is obvious if you compare them yearto-date,
he notes.
TIPS are designed to protect against inflation by
adjusting up the value of the underlying bond when inflation
rises and adjusting the value down when inflation
declines, says Russel Kinnel, director of manager research
for Morningstar. TIPS' yields are typically 2% or less, and,
due to those low yields, the vehicles are more interest-ratesensitive
than bonds of a similar maturity-either five, 10
or 30 years. Purchasing longer-term TIPS funds increases
interest-rate risk, and, though inflation and interest rates
often go in the same direction, this is not always the case;
TIPS funds can lose value because interest rates rose but
inflation expectations did not.
A five-year TIPS investment has returned about 5%, while
natural resources have gone up about 19%, real estate about
18%, and infrastructure about 9%, McDonald says. These
will provide good inflation protection and a better return
opportunity than will TIPS. Still, investing in those assets
vs. TIPS does come with extra risk, he says. A key decision
people must make is how much risk they are willing to take.
McDonald explains that investing in real asset companies
can be beneficial during times of inflation because
the companies can easily pass through price increases to
12 | planadviser.com January-February 2022
Art by Karlotta Freier
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PLANADVISER - January/February 2022
Table of Contents for the Digital Edition of PLANADVISER - January/February 2022
The Virtual Reality
Getting to Yes
A Share of the Wealth
The Full View
Life Happens
An Objectivity Lesson
Best Execution Standard
PLANADVISER - January/February 2022 - Cover1
PLANADVISER - January/February 2022 - Cover2
PLANADVISER - January/February 2022 - 1
PLANADVISER - January/February 2022 - 2
PLANADVISER - January/February 2022 - 3
PLANADVISER - January/February 2022 - 4
PLANADVISER - January/February 2022 - 5
PLANADVISER - January/February 2022 - 6
PLANADVISER - January/February 2022 - 7
PLANADVISER - January/February 2022 - 8
PLANADVISER - January/February 2022 - 9
PLANADVISER - January/February 2022 - 10
PLANADVISER - January/February 2022 - 11
PLANADVISER - January/February 2022 - 12
PLANADVISER - January/February 2022 - 13
PLANADVISER - January/February 2022 - 14
PLANADVISER - January/February 2022 - 15
PLANADVISER - January/February 2022 - 16
PLANADVISER - January/February 2022 - 17
PLANADVISER - January/February 2022 - The Virtual Reality
PLANADVISER - January/February 2022 - 19
PLANADVISER - January/February 2022 - 20
PLANADVISER - January/February 2022 - 21
PLANADVISER - January/February 2022 - 22
PLANADVISER - January/February 2022 - 23
PLANADVISER - January/February 2022 - Getting to Yes
PLANADVISER - January/February 2022 - 25
PLANADVISER - January/February 2022 - 26
PLANADVISER - January/February 2022 - 27
PLANADVISER - January/February 2022 - A Share of the Wealth
PLANADVISER - January/February 2022 - 29
PLANADVISER - January/February 2022 - 30
PLANADVISER - January/February 2022 - 31
PLANADVISER - January/February 2022 - The Full View
PLANADVISER - January/February 2022 - 33
PLANADVISER - January/February 2022 - 34
PLANADVISER - January/February 2022 - 35
PLANADVISER - January/February 2022 - Life Happens
PLANADVISER - January/February 2022 - 37
PLANADVISER - January/February 2022 - An Objectivity Lesson
PLANADVISER - January/February 2022 - Best Execution Standard
PLANADVISER - January/February 2022 - 40
PLANADVISER - January/February 2022 - Cover3
PLANADVISER - January/February 2022 - Cover4
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