Sleep Worry Free? Hahaha!

Sleep Worry-Free with These Inflation-Proof Investments

If TIPS sound appealing, you're not alone. Along with gold, this sector has been flooded with more new cash than any other during the past few months. The iShares TIPS offering attracted nearly $850 million in September.

I want to first point out that TIPS are not "inflation-proof" investments. Not even close.

There are two ways the government could default on all of its debt. TIPS protect against neither outcome.

1. In hyperinflation, the enormous taxes on the inflationary gains each year could and would create enormous pain to the holders of TIPS.
2. In severe deflation, the government could simply default on its debt outright.

In order to willingly invest with those risks in mind, I need to be paid some sort of a risk premium. Today's 0.33% real yield on the 5-Year TIPS is not a premium. It's a way to lose money. Even in a mild 3% inflationary world within a 30% tax bracket, I would not keep up with inflation. I'd be losing 0.7% per year after taxes. That assumes I buy TIPS for free directly from the government and therefore avoid paying additional fund expenses to a third party. If not, it can get even worse.

This brings me to my main point. I rarely sleep worry free when my investments are "flooded with more new cash than any other" while being simultaneously told they are a sure thing.

I tend to get all panicky and take some profits and junk and stuff. So far, so good.

Men in Black II

Agent K: You did not see a room full of shiny weapons, you did not see four alien night crawlers. You *will* love and cherish each other for the rest of your life.

Agent J: Which could be the next 27 or 28 minutes, so y'all should get to lovin' and cherishin'. Oh, and she gets to stay up as late as she wants and have candy and cookies and cake and junk and stuff.