BondGuy

Runaway Inflation: Do TIPS Really Help?

However poor a measure of inflation CPI may be, the so-called advantage of stocks, the equity premium over safe bonds, is also measured against CPI. A 10 year TIPS guarantees 1.7% real return over the next decade. Will you be able to beat that with stocks over the next 10 years? If history is a guide, the answer is yes. The equity premium is estimated to be a 5 percent real return over safe bonds, yielding a predicted 6.7% real return The only question is whether history will repeat itself. We all know the answer to that. Don't we?