Inflation-linked bonds: not as worry-free as portrayed?

51E59XgLcGL._SX335_BO1,204,203,200_My latest ETF column in the Financial Post carries the descriptive headline, Real-return bond funds are worry-free funds, right? Hardly. As you can see by clicking through on the link, the worry-free label refers to a book by Zvi Bodie entitled Worry-Free Investing.

The book touts the benefits of (in the U.S.) Treasury Inflation Protected Securities (or TIPS) and by extension their equivalents in Canada: Real Return Bonds (RRBs), whether sold individually by the federal government or some provinces, or whether packaged up in mutual funds or ETFs (the latter being the focus of this particular column).

To be sure, this is an asset class that I think deserves to be a subset of most investors’ fixed-income portfolios. But as you can see in the column, when I asked investment advisors and ETF experts about whether now is the time to start building positions in RRB or TIPS ETFs, they were decidedly on the cautious side.

The book, shown above, has been in my personal library since it was originally published, and when I was I reviewed it positively. Curious about whether the author, Zvi Bodie, has updated his views, I tried to reach him for this column but did not hear back. If he does read this, the Hub would be delighted to run a guest blog by him on the topic.

In the meantime, it would seem that inflation-linked bonds and fixed-income funds holding them or any longer-duration products, won’t be as worry-free (relative to stocks) as they once seemed. That’s especially the case if, as now seems to be the case, the Federal Reserve starts to come off zero (interest rates) as early as this December.


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