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Is a pure TIPS strategy truly risk free?

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  • Haensly, Paul J.

Abstract

A Treasury Inflation-Protected Security (TIPS) is virtually risk free. As an obligation of the U.S. Treasury, it is mostly free of default risk. As an inflation-indexed security held to maturity, it is risk free in terms of purchasing power. However, investing in a TIPS-only portfolio for retirement is not risk free. This paper presents the results of a simulation analysis designed to evaluate the performance of a portfolio of inflation-indexed Treasury coupon bonds. This study demonstrates that significant shortfall risk exists for TIPS-only portfolios across a range of savings plans and the securities selection rules.

Suggested Citation

  • Haensly, Paul J., 2016. "Is a pure TIPS strategy truly risk free?," Review of Financial Economics, Elsevier, vol. 28(C), pages 1-20.
    • Handle: RePEc:eee:revfin:v:28:y:2016:i:c:p:1-20
    DOI: 10.1016/j.rfe.2015.09.003
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    More about this item

    Keywords

    Inflation-indexed bonds; TIPS; Shortfall risk; Portfolio management; Inflation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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