The most recent edition of my Ask the Analyst column on CD ladders generated a lot of interest. Because I mentioned Treasury Inflation-Protected Securities ladders as an alternative, I also received many questions about those. Below are some of the most common questions that showed up in my inbox.
1) Amy, I just read your article on CD ladders and TIPS. At the beginning of May, I decided to pare down some equity holdings and split the proceeds between VBIL (Vanguard 0-3 Month Treasury Bill ETF) and TIP (iShares TIPS Bond ETF). VBIL has maintained its principal and paid out interest; however, with the TIP option, I have lost 3% of my principal. I’m confused, as I do see inflation continuing in everyday life and chose that vehicle to protect against this. I may return to CD ladders.
You’ve pointed out one of the key pitfalls of TIPS: interest rate risk. While TIPS are an excellent hedge against inflation, they’re still subject to the same type of risk that can foil any other type of bond. TIPS and bond funds with longer durations are at the greatest risk from rising interest rates. Rising market yields between May and late July 2026 (when you sent in this question) caused losses for funds such as iShares TIPS Bond ETF, whose portfolio has a relatively long duration (6.3 years).
If you want to avoid losses from rising rates, holding individual bonds can be a better option. Although they’ll still experience losses if interest rates rise, their par value at maturity won’t be affected by changes in market rates.
If you return to certificate of deposit ladders instead, you would be avoiding one type of risk (interest rate risk), but not another one (inflation risk). Because yields on CDs are fixed, they will generally lose purchasing power from the effects of inflation over time.
2) You covered CDs vs. CD ladders in your article. And you also mentioned TIPS as well. What about comparing making a TIPS ladder vs. using a TIPS ETF?
As the previous questioner pointed out, interest rate risk is one of the main disadvantages of TIPS exchange-traded funds. A TIPS ladder is also subject to price changes from shifts in prevailing interest rates, but as long as you hold each rung of the ladder to maturity, you won’t lose principal value if interest rates rise. The ladder structure also makes it easier to match up the bond’s cash flows with the timing of anticipated spending. For example, a retiree could set up a 10-year TIPS ladder made up of TIPS with maturity dates ranging from one to 10 years. As each bond matures, the proceeds could be used to cover spending needs for that year. A TIPS ETF could also be used to cover spending needs, but could see its principal value decline in any given period.
3) What is the limit for purchasing TIPS?
The minimum purchase amount for TIPS is $100 if you purchase it directly (via TreasuryDirect). Brokerage platforms such as Fidelity, Schwab, and Vanguard generally require a minimum purchase amount of $1,000.
4) How and where do you set up a TIPS ladder?
Most major brokerage platforms allow customers to build customized ladders of TIPS with staggered maturity dates. TreasuryDirect is another option for setting up a TIPS ladder. The process involves setting up an account, selecting TIPS with specific maturity dates, and purchasing TIPS with at least $100 per rung to build an inflation-adjusted income stream. TIPSLadder.com offers a variety of helpful resources to help investors construct a ladder. Alternatively, you can purchase a prebuilt ladder with products such as iShares iBonds 1-5 Year TIPS Ladder ETF LDRI. These funds hold diversified portfolios of TIPS that mature in the same year. Like an individual bond, each ETF provides regular interest payments and distributes the principal value at maturity.
5) How do TIPS mutual funds or ETFs compare to individual TIPS purchased through TreasuryDirect.gov or through a brokerage? What are the advantages and disadvantages of each?
As I discussed in the answer to the first question, interest rate risk is the main disadvantage of TIPS mutual funds and ETFs. Individual TIPS are also subject to interest rate risk, but provide a set value (adjusted for inflation) at maturity.
6) You mentioned TIPS ladders are an alternative to CD ladders for inflation protection. What happens if you only have a taxable account … would you recommend the same?
Both interest payments and increases in the principal value for TIPS are subject to ordinary income tax at the federal level. As a result, TIPS are usually a better fit for tax-deferred accounts, such as an IRA or 401(k). One exception is for retirees with lower levels of income. Under the current tax laws, a married couple may not need to pay federal income tax on income up to $46,700 owing to the combination of the standard deduction and traditional age-based deduction, plus the $12,000 joint senior bonus deduction.
7) Please provide advice and a strategy for investing in I bonds, TIPS, and iShares (iBonds ETFs) for retirement. Or is Social Security adequate to protect against inflation? Let’s assume existing diversified ETF and mutual fund investments in Roth and IRA accounts.
If Social Security covers most or all of your monthly living expenses, you may not need separate inflation protection. That’s because Social Security payments have a built-in cost-of-living adjustment, with payments increasing annually in line with the consumer price benchmark reported by the Bureau of Labor Statistics. If the majority of your expenses aren’t covered by Social Security, it’s worth adding some dedicated inflation protection to your portfolio. If you want to immunize all of your future spending against inflation and match up the timing of cash flows and spending needs, you could set up a TIPS ladder to cover each year’s spending needs during retirement. (Stefan Sharkansky discussed this topic in more detail in a recent episode of The Long View podcast.)
Alternatively, you could invest a portion of your fixed-income portfolio in TIPS (using one of the vehicles discussed above) and the remainder in other high-quality bonds. Bill Bernstein recommends a 40/60 split between TIPS and other bonds, which I think is a reasonable approach. Keeping a portion of your portfolio in stocks is another way to hedge against potential inflation risk.
8) I made a TIPS investment at TreasuryDirect in 2021. I would like to set up a ladder of TIPS investments, but I’m unsure if I should make another investment at TreasuryDirect since they have a penalty for early withdrawal. I have a Fidelity CD ladder, and after reading your article, thank you, I’m considering switching to a TIPS ladder as the CDs mature. How could I use my current TreasuryDirect TIPS investments to start setting up a TIPS ladder at Fidelity (or Vanguard)?
It is possible to transfer TIPS holdings from TreasuryDirect, but the process may be somewhat complicated. First, you’d need to fill out a transfer request from the official government site. Next, you’d need to sign the form in person at a bank or brokerage firm that can provide a medallion signature guarantee. Then, you’d need to contact the brokerage firm for specific directions on how to make the transfer to your brokerage account and send the transfer request form and signature guarantee to TreasuryDirect. I haven’t gone through this process myself, but it can reportedly take at least several months.
9) What’s the cost of having Fidelity for a CD ladder? How does that compare with FZDXX [Fidelity Money Market] and/or SPAXX [Fidelity Government Money Market]?
If you’re building a CD ladder made up of newly issued CDs through Fidelity, there’s no separate cost charged to you (assuming you build the ladder online without working with a phone representative). Fidelity gets paid by the issuing bank.
If you’re building a CD ladder made up of CDs on the secondary market, there’s a trading fee of $1 for each CD with a $1,000 par value. There may be other fees if you buy fractional CDs on the secondary market.
For comparison, Fidelity Money Market FZDXX has an expense ratio of 0.30% (or $3 for a $1,000 investment). Fidelity Government Money Market SPAXX has an expense ratio of 0.42% ($4.20 for a $1,000 investment).
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In this column, I answer questions from readers about investing, personal finance, and retirement planning. (Note: I’m focusing on questions that are of general interest to many of our readers, not personalized tax advice or portfolio recommendations.) You can submit one by filling out this quick survey.