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Treasury Inflation-Protected Securities (TIPS) are government bonds specifically designed to protect the purchasing power of your money from inflation. The Vanguard Short-Term Inflation-Protected Securities ETF aims to duplicate the returns of the Bloomberg U.S. Treasury Inflation-Protected Securities Index, which tracks TIPS with a maturity of five years or less.
TIPS are issued with a set maturity date which is paid on the principal value of the bond. As inflation rates change, so does the principal value of the bond. When inflation rises, the interest payments rise as well. VTIP’s focus on short-term durations of less than five years aims to provide returns in line with the current inflation rate while maintaining lower volatility.
VITP provides a simple, cost-effective way to protect your cash from rising inflation rates. The 0.04% expense ratio is rock-bottom, and the ETF structure is much more convenient to buy than purchasing individual TIPS.
As interest rates rise, the fund’s value might drop a bit, and this price decline will be offset as new bonds with higher yields replace lower coupon-rate bonds. As interest rates become more stable, so will VTIP’s price. This fund is best for money you can leave invested for at least one year.