Treasury Inflation-Protected Securities are an investment category that can evoke distinctly different reactions from financial planners. Some think they provide valuable portfolio insurance, while others think they are a badly flawed product. But when TIPS are added to actual portfolios, how have they actually performed?
It is indisputable that investment portfolios need a diverse array of assets in order to smooth the pattern of returns. A smoother return pattern results in a lower standard deviation of return over time, which translates into a portfolio with lower risk. The great news is that a well-diversified portfolio that operates with lower volatility does not necessarily have low returns. In fact, broad diversification, while primarily a risk-reducing technique, can also provide attractive performance.
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