Investing - Theory, News & General • Re: Holding TIPS in a Target Date Fund

I understand that this is your interpretation, and it is certainly a reasonable one.

My hesitation is that Vanguard already includes relatively small bond-market segments in its broad bond allocation. For example, the U.S. ABS market is roughly $1.7T and the non-agency CMBS market is roughly $1.6T, compared with about $2T for TIPS.

So the fact that the TIPS market is relatively small does not, by itself, seem to explain a 0% TIPS allocation earlier in the glide path.

This is speculation but it may be that for a portfolio of mostly stocks, bonds act primarily as a diversifier and occasionally even a hedge. Nominal bonds, especially treasuries are typically better at that. If stocks fall due to economic slowdown, bonds derisk by holding their value or maybe increasing in value.

As the allocation of bonds increase their role as a stock diversifier diminishes and they become more exposed to inflation and by themselves TIPS are better at holding long term real value than nominal bonds.

The argument makes sense, but I would add that:

Nominal bonds are not always better diversifier. For example, if stocks fall because of an unexpected inflation shock, nominal bonds can also fall as interest rates rise. In that case, TIPS may actually provide better diversification.

I do agree with the second point. As the stock allocation falls and the bond allocation rises, explicit inflation protection becomes more important. That is essentially Vanguard’s stated rationale for adding TIPS closer to retirement.

Interestingly, this may be the first response here that seems to agree with Vanguard’s rationale. Do most people here actually disagree with Vanguard’s reasoning? And we are not even talking about the fact that Vanguard uses essentially no TIPS during most of the accumulation phase and only starts adding them closer to retirement.

Statistics: Posted by babystep — Mon Oct 26, 2026 11:35 pm