A popular Investment Magazine recently published the following: “You know that the best time to buy health insurance is before you get sick. So why not insure your portfolio against rising prices while inflation expectations are low?”
a) Do you think TIPS are a smart investment at this time? Discuss, i.e., Why? For Whom? What are the aspects of the investment that you are using for your assessment of the value of these assets?
b) What are your inflation expectations? How does this compare to the “break-even rate” that the market often uses to decide the value of a TIP vs. a plain vanilla Treasury of similar maturity? Looking at the decision from this perspective, does this change your decision in any way? Why or why not?