VTIP: A Good Place To Park Cash As Inflation Persists

2025-05-07 13:11:46 ET

Summary

• The current high Shiller CAPE ratio and persistent inflation suggest a defensive allocation model.
• Under this model, Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares offers good choice for investors to park cash.
• The VTIP ETF offers inflation protection through TIPS, adjusting principal and interest with CPI changes, maintaining real value and higher income during inflation.
• VTIP's low expense ratio (0.03%), significant AUM ($14.72 billion), and short-during make it a compelling cash substitute.

VTIP stock: previous thesis and new developments

I last covered the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (NASDAQ: VTIP ) in 2022. To wit, the article was titled "SPY And VTIP: Best Time To Deploy Cash Since 2019.” It explained why the correction in the equity market at that time, combined with the treasury rate drop, offered an excellent opportunity for investors to deploy cash. Quote:

This month witnessed the 10-year Treasury rates pushing beyond 2.9% for the first time since 2018. Combined with a sizable correction in the equity market, our exposure index surged to the highest level since March 2019 and signaled opportunities for cash deployment. You can use the SPDR S&P 500 Trust ETF and the Vanguard Short-Term Inflation-Protected Securities ETF to benefit from such dynamic deployment and generate alpha. You will see how SPY can be used to generate an effective leading cash allocation signal. You also will see why we think Treasury yields are close to their long-term targets already and VTIP can serve as an effective cash vehicle.

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