Dawn Brown, senior financial adviser for the money management firm Altfest Personal Wealth Management, and other experts say there are a number of advantages to buying TIPS mutual funds rather than individual bonds. First, the mutual funds are actively managed by professionals who monitor the bond market and inflation trends and who can select the best times to buy and sell holdings. Fund managers hold many investments in a diversified portfolio, and by spreading money across a number of positions, they manage to take advantage of the most favorable market conditions and protect your investment from a downturn. Brown says, “Diversification and the expertise of a portfolio manager are clear advantages a mutual fund brings to what is a low-volatility investment.†According to Jones, “TIPS’ valuations can vary widely and individual investors can often be skittish and sell out at the wrong time. It pays to have someone experienced at the helm of a portfolio who can buy and sell at the best time.â€
Mutual funds, of course, come at a price and annual fees are assessed on investor returns. Also, many of the better offerings require a minimum initial investment of $1,000 or more. Jones recommends shopping for funds with an expense ratio of 0.50% or lower.
HOT TIPS
Recommended Treasury Inflation-Protected Securities mutual funds:
Vanguard Inflation Protected Securities (VIPSX)
One-year yield: 3.79%
Expense ratio: 0.20%
Minimum investment: $3,000
Telephone: 800-662-7447
One-year yield: 4.37%
Expense ratio: 0.49%
Minimum investment: $2,500
Telephone: 800-345-2021
One-year yield: 2.29% yield
Expense ratio: 0.90%
Minimum investment: $1,000
Telephone: 800-426-0107
Source: Morningstar
This article originally appeared in the August 2009 issue of Black Enterprise magazine.