09.28.26 TIPS Vs Bonds / How To Protect Your Social Security Now
The Clark Howard Podcast
Clark Howard discusses strategies for protecting wealth against inflation, specifically recommending TIPS ladders for older investors. The e
Key takeaways
- TIPS (Treasury Inflation-Protected Securities) can serve as an effective inflation-proof alternative to traditional bond funds for those in their 50s and older.
- A 'TIPS ladder' with different maturities may offer better downside protection than a standard TIPS fund.
Main topics
- TIPS vs. Traditional Bonds
- AI in Financial Management
Notable quotes
Short-term, buying stocks is a casino. Long-term, it's a smart play.
Conclusion
The episode provides actionable defensive measures for protecting long
Transcript preview
Speaker 2 (0:04) I'm so glad you're with us here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. And in today's episode, something I'm constantly asked about is how to outrun inflation without investing so heavily in stocks. And I'm going to address that later. No matter what your age, I have a special assignment for you to do to try to prevent someone from hijacking your Social Security. And you're like, I'm younger. What difference does that make? Let me tell you, if somebody fouls up your earnings history, it's a mess for you. All right, let's talk about what's a mess right now. So the stock market values. Stock market's gone up and up and up and up and up. There's a lot of people who are worried about what the trajectory for the stock market's going to be with extreme federal spending, deficit spending, the debt, inflation. All the factors going on right now, it's led to the 10-year Treasury topping 5%, which is a big number in the last 15 years. 30-year Treasury, higher yet. Here's the thing. One of the most confusing things for people is, okay, I know I need to have some money, regardless of my age, in the stock market. But as I age, I want to reduce the percent of my money that's in the stock market. Historically, there was a big thing called the 60-40. You do 60 % in stocks, 40 % in bonds. But at a time of loss of confidence about federal government having its arms around inflation, there's more and more fear owning bond funds because what happens when interest rates rise, the value of your bonds goes down. It's backwards of what you might think. So people are like, what do I do? Do I just take all my money that's not in the market and put it in savings accounts or money market accounts? Well, there is an alternative that the pointy-headed people in the finance world talk about, but people's eyes glaze over. And it's called TIPS. Treasury inflation-protected securities. The idea of a TIPS fund or TIPS themselves is you get the rate of inflation plus a return on your money. So TIPS were kind of ignored for a long period of time when inflation was so subdued, and they're having their moment in the sun again as an alternative to traditional bonds. when you're trying to build the lower risk portfolio because of your age. Now, if you're younger, being overwhelmingly in stocks or stock funds, I'm all about index funds or ETFs and broad market ETFs, exchange traded funds. It doesn't matter if the market craters when you're in your 20s, 30s, 40s. Starts to matter more in your 50s. Because it's all about having time for the market to recover and your money to grow again. But it is a normal cycle for markets to go through downdrafts. And we are obviously overdue for one. And Wall Street analysts are always undyingly optimistic because they want people in the casino. They want people investing. Short-term, buying stocks is a casino. Long-term, it's a smart play. The problem is long-term. If you are late 50s and beyond, you need to make sure that your portfolio is more balanced. And that's where the confusion is right now. How to do that with the non-stock side of things. Now, a lot of Wall Street clowns will try to sell you private equity and weird kind of hedges and stuff that make them much more money under the false illusion that it's going to provide you downside protection. Then you've got the insurance salespeople. They're going to say, hey, come over here. Come over here. We have a look over here. We got this annuity protection scheme. And look only on this side. Don't look over here with what we're going to charge you for that, with the enormous commissions and fees involved in it. And, by the way, you're also our prisoner for up to 15 years because of something called surrender charges to cover the massive commissions involved in those. So where's the person to go? I mean, obviously, the easiest answer is just straight in the savings account or money market. But then that money is not going to keep up with inflation. And that's where the tips come into play. Now, if you start reading about tips, it's one of those things that at first is really confusing. The more you read, the more you understand. And you can go to a service online that will build a tips ladder for you. You can buy a tips fund. low-cost fund. But many people in the investment community believe that this is an area that's much better owning what's known as a ladder of tips that are for different maturities in typically five-year bands or even, I've seen one-year bands, but more often five-year bands, for the money you have that you want to make sure keeps up with inflation and makes a little more, but doesn't have downside risk in the market. There is potential for downside risk with the tips fund that does not exist with a properly constructed tips ladder. Now, I just went way technical here, but I wanted to give you another tool you can use, and this requires homework on your part to learn more about it. Now, we have information on Clark.com explaining tips in simple English. It is all about you being knowledgeable and not just