What’s Good
Treasuries are the perennial safe-haven investment, so in times of economic crisis, this fund stands to benefit from the rush. These securities are backed by the full faith and credit of the U.S. government – meaning that if the government goes bankrupt, you lose. However, the government has a wide range of ways to gain access to cash (for example, by raising taxes), and that makes bankruptcy extremely unlikely.
This fund gives investors a cost-effective way to get exposure to a range of bonds and different maturity dates. Before ETFs came along, getting exposure this wide would have been prohibitively expensive.
What To Watch Out For
- You will never get rich with Treasury bonds, as their yield is the lowest among all bond types. That’s the price investors pay for high quality. Short-term Treasuries have been yielding about 1% or less, while 10-year bonds about 3.6%.
- With TIP and other bond ETFs, the share price is determined by the face values of the individual bonds in the underlying index. When those prices rise, so does the share price of the ETF.
For full disclosure, some of Tom Lydon’s clients own shares of TIP.