I’d written previously about how investors have struggled to successfully invest in funds that hold Treasury Inflation-Protected Securities. They’ve tended to buy high—that is, after an inflation scare or a strong run—and sell low, by cutting their stake after yields had risen. Consequently, they’d made very little return on the average dollar they invested.

This pattern isn’t unique to TIPS funds. We’ve seen investors mistime their buys and sells across a wide variety of funds. But what makes it more pernicious is these timing costs can entirely negate the very thing investors are seeking in these funds—the inflation hedge.

Bad Timing

How have they done in the time since I published that article in June 2023? We’ve seen some of the same inopportune timing but also some glimmers of hope.

Let’s get the bad stuff out of the way: Investors in TIPS funds that hold intermediate- and longer-duration bonds still seem to be struggling to get the timing down. They withdrew money before returns improved (from mid-2023 to mid-2024) and then added sums before it deteriorated (later in 2024).

On a more encouraging note, we’ve also seen investors allocate more to funds that focus on shorter-maturity TIPS. This is ostensibly a positive in that these strategies court less interest rate risk and thus will tend to be less volatile. That stability should, in theory, make the funds easier for investors to use, which in turn hopefully gives them a better shot to stick with them and at least capture the inflation protection they confer.

The results don’t fully bear that theory out, however. For instance, investors were pulling money out of short-term TIPS funds through mid-2024 amid generally improving returns, and then they started adding to them later last year, only for performance to fall off over subsequent months. That’s opposite what you’d hope to see.

On the other hand, investors have done a slightly better job lately, shoveling money into the funds at a time returns have perked up. (Though not shown, it’s likely that has continued into 2025, as the average short-term TIPS fund’s performance has improved further still.)

Maybe Just Ladder?

All told, though, I can’t help but wonder if investors seeking inflation protection from TIPS would be better off just constructing a bond ladder. Ordinarily, I wouldn’t suggest that, as the argument to invest in individual bonds instead of a fund is usually a red herring.

What makes TIPS different, though, is the particular purpose they’re sought for: inflation protection. True, an investor in TIPS should ordinarily expect to get extra yield, above and beyond the inflation adjustment. But for most investors, the inflation protection is the main draw, and so the key is to ensure they stay put to at least obtain that.

Given that and considering the difficulties investors have encountered using TIPS funds, I think a TIPS ladder can make sense. In constructing one, an investor gains exposure to various bond maturities and the incremental “real” yields they offer, while also retaining some certainty about what will come due in what amount and when.

The main obstacle to doing so in the past has been administrative—you’ve got to purchase the individual bonds and (unless you’re letting the ladder run off, as some retirees do) replace maturing bonds with new issues. It’s kind of a pain. Fortunately, we’ve seen issuers launch target-maturity TIPS exchange-traded funds (iShares iBonds Oct 2025 Term Tips ETF IBIB) that make it easier to buy and sell the rungs of a ladder, albeit at a modest cost.

Also intriguing are a new crop of ETFs, like iShares iBonds 1-5 Year TIPS Ladder ETF LDRI (which rebuilds its ladder each year) and LifeX 2055 Inflation-Protected Longevity Income LIAM (which lets the ladder gradually run off), that mechanize the process of building a TIPS ladder. This could allow some investors to set-and-forget their TIPS exposure, with the ETF handling the process of rolling maturing bonds into new issues.

Is laddering in this fashion optimal? No. But it seems far less suboptimal than the way investors seem to be using TIPS funds, frittering away returns by mistiming their trades and, in the process, compromising their ability to obtain inflation protection. Sometimes “practically good” beats “theoretically perfect,” and this strikes me as one of those instances.

Switched On

Here are other things I’m reading, listening to, or watching:

• The best target-date funds, according to our analysts.
• My colleague Jack Shannon on whether private equity is attractive or not.
• Invest like Dwight Schrute (this will never cease to amuse me).
• Vanguard is splitting itself in two.
• Another great roundup of investment ideas and debates, courtesy of Tom Brakke.
• RIP Sly Stone: The Sound Opinions podcast assesses his monumental legacy.
• Patrick O’Shaughnessy chats with Bill Gurley about the state of private markets—incentives, bottlenecks, opportunities, and all.
• Tyler Cowen and Chris Arnade talk about walking, the world over.
• Larry Charles—of Seinfeld, Borat, and Curb Your Enthusiasm fame—on comedy and regrets.

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.