Maybe nothing put Trump into a second term so much as voter pique over consumer price inflation that reached 8% in 2022. He says he’ll fix it. (It’s already back to normal, 2.4%.)

But of course Trump will make inflationary pressures worse, adding to forces that have been building for years.

He wants wants to tax imports and deport low-wage immigrants. He will pressure the Federal Reserve to let the economy run hot. A Republican-controlled Congress would make huge budget deficits even bigger. All are inflationary in the short term.

The Internet and globalization shocks that suppressed inflation for three decades are over. Federal debt of $35 trillion and counting will head higher and deeper into unmapped territory. Central banks conjure billions in new money in a keystroke. Those are inflationary in the long term.

Fortunately at the moment (Nov. 10, 2024) markets are offering a strikingly cheap and low-risk form of long-term inflation insurance that gets little coverage in the financial media. (The WSJ had a decent piece this weekend.)

You can buy a Treasury bond guaranteeing a real, after inflation return of about 2% annually, for decades to come — until 2054, if you like. That’s the highest yield since the housing crisis of the 20-aughts.

2% may not sound like much. But remember that less than three years ago the interest yield on regular 30-year Treasury bonds was less than 2% — with no inflation protection. People owning those got plastered.

The government launched Treasury Inflation Protection bonds — TIPS — in the 1990s. The idea was to give investors inflation protection and lower federal borrowing costs by attracting new kinds of bond buyers.

(Brit readers: You invented sovereign inflation bonds! Inflation-index gilts in the UK give the same kind of protection as TIPS.)

TIPS work like this. Pay $1,000 for a bond. When it matures, the principal the government owes you will have risen in parallel with the consumer price index. If inflation is 8% annually then after five years your principal is not $1,000 but about $1,470.

There’s more. Because the principal goes up, so do interest payments calculated as a percentage of principal. A 1% coupon that pays $10 annually at first rises to $14.70 after five years and keeps going up with inflation.

Nobody is going to get rich, and nothing will happen quickly. (This is why TIPS get ignored by TV shouters.) After 30 years, 2% compounded produces a real, inflation-adjusted return of about 80%. The stock market has gone up that much in five years.

But making a fast killing is not the point. TIPS are insurance against bad inflation in a way that stocks and nominal bonds are not.

And unlike home and auto insurance, at current prices TIPS inflation protection pays you instead of vice versa. Also unlike home and auto insurance, there are no ceilings on TIPS payouts.

If something like hyperinflation breaks out and the CPI hits 20% or 40%, TIPS principal and interest will follow suit while other investments crash. Your after-inflation investment return: still 2%. Because risk increases at some nonlinear rate the farther you look into the future, long-term TIPS are quite the deal.

TIPS got a bad rap in the Covid aftermath because TIPS and TIPS mutual funds, which hold dozens of bonds of varying maturities, actually lost value even as consumer prices went crazy. That’s because TIPS trade all over the place in counterintuitive ways on the secondary market before the Treasury finally redeems them.

So don’t buy TIPS mutual funds. TIPS are not a short-term speculation for regular investors. Buy individual TIPS bonds and hold to maturity. They do just what they’re supposed to. (TIPSWatch blog, which I highly recommend, suggests building a “ladder” of rising TIPS maturities. Email me if you have questions. I am not a licensed financial adviser.)

Only a few years ago the guaranteed, inflation-adjusted yield on long-term TIPS was negative. Guarding against very bad inflation was going to cost you a slight loss in buying power anyway. But real yields to maturity on many TIPS issues have been more than 2% for most of the past 14 months.

What could go wrong? If deflation (falling consumer prices) happens, a bond’s accumulated, CPI-linked principal value could decrease. (But only back to the face value at issue.)

But don’t worry. Deflation, the product of economic depression, is unlikely. We live in a world where the Fed rescued the economy during Covid by buying junk-bond ETFs(!) among other stuff and can go even further in the next crisis under section 13(3) of the Federal Reserve Act. (And fuel inflation in the bargain).

Will the government rig the CPI, like they did in Argentina, to try to hide inflation? I hope not.

Will huge deficits and unsustainable debt someday cause the government to stiff all bondholders, including TIPS owners? Also unlikely. More probable is a tacit policy of letting year after year of inflation erode the real value of the obligations, letting the Treasury repay people who buy conventional bonds today in debased 2050 dollars.

It’s possible that inflation won’t veer out of control. But guess what? You’ll make money anyway. At today’s prices TIPS are a one-way bet.

They are probably not for your whole portfolio. In our household, inflation insurance of gold ETFs and a TIPS ladder makes up about 5% of our savings.

The world is risky and just got riskier. Every other investment — stocks, fixed-rate bonds, commodities etc. — is something of an act of faith. TIPS pay a certain amount on a certain date far away into the future.