Ignoring TIPS as an asset class

    In 1997, the U.S. government began issuing Treasury Inflation Protected Securities (TIPS).  About a dozen other countries, including England, Canada, Australia, and Israel, also issue inflation-protected bonds.

    In November 1999, Ibbotson Associates* released a paper, entitled "TIPS as an Asset Class," arguing that TIPS deserves to be treated as a separate asset class.

    Most investors want to achieve their goals with as little risk as possible.  TIPS are critical component to building such a financial plan.

    But even though more than 12 years have passed since TIPS were first issued, many commercial portfolio planners – the ones that are heavily marketed to financial advisors – don't even include TIPS as one of the selectable asset classes.

    EISI's market-leading NaviPlan* software – with over 100,000 financial professional subscribers – models twelve (12) asset classes, including five (5) different bond asset classes, but not inflation-protected bonds.  Same story  – or so it appears from page 4 of this sample document – for Money Guide Pro*, with over 25,000 subscribers.  Financeware* only recently – in 2008! – added Treasury Inflation Protected Bonds as an asset class.

    Why has the financial software services industry dragged its feet so long on treating TIPS as an asset class?  Perhaps their planners are so dependent on mean-variance optimization, which is in turn is so dependent on mining a long-term historical data set, that TIPS just don't fit in with their "philosophy."  Whatever the reason, ignoring TIPS as an asset class disserves the ordinary investors who rely on their software.

 

      You don't have to wait any longer.  TIP$TER fills that long-felt need.  TIP$TER not only recognizes TIPS as an asset class, but also gives TIPS the prominent role of the "risk-free" asset. 

    TIP$TER treats TIPS like economists treat TIPS – as the closest proxy available for a riskless asset – and evaluates a mixed portfolio against the baseline of a 100%-TIPS portfolio.

Next: Unrealistic Modeling of Retirement Budgets

Previous: The Cover Up

 

 

 

 

   

*Ibbotson Associates is a trademark of Ibbotson Associates, Inc., which which Prospercuity claims no sponsorship, connection, affiliation, or association.
NaviPlan and Profiles are trademarks of Emerging Information Systems Inc., which which Prospercuity claims no sponsorship, connection, affiliation, or association.
Financeware, Inc., is a trademark of Financeware, Inc., which which Prospercuity claims no sponsorship, connection, affiliation, or association.
Money Guide Pro is a trademark of PIETech, with which Prospercuity claims no sponsorship, connection, affiliation, or association.