MarketWatch reports that Bob Elliott, a hedge-fund manager, has drawn attention to what he describes as a bargain in Treasury Inflation-Protected Securities, commonly known as TIPS. His assessment is generating interest because he says the opportunity could provide inflation plus 3% a year.
That is a notable proposition for business owners whose costs, pricing and cash planning are affected by changing purchasing power. An inflation-linked return may appear attractive when compared with leaving excess funds exposed to the possibility that rising prices will reduce their real value. However, Elliott’s view is an assessment, not a promise that every business investor will achieve the same result.
The practical lesson is to separate operating cash from longer-term funds before considering any investment decision. Money needed for payroll, suppliers, taxes or near-term expansion has a different job from capital that can remain invested. A potentially appealing return does not remove the need to protect liquidity or account for the timing of a business’s obligations.
Owners should also treat the phrase “generational buying opportunity” as a signal to investigate, rather than as a reason to act quickly. Review the underlying security, the expected holding period, access to funds and how the investment fits with the company’s risk tolerance. Canadian, US, Australian and New Zealand businesses may also face different currency and tax considerations when assessing an investment discussed in US-market coverage. The broader takeaway is that inflation protection deserves a place in financial planning, but the right allocation depends on each firm’s cash-flow needs and objectives.
Source: MarketWatch.
