Regardless of whether an investor is pursuing a short- or long-term financial goal, accounting for inflation’s trajectory is always tricky.
The latest inflation data emphasizes this truth. Yes, the January Consumer Price Index (CPI) data shows that inflation has grown a little less than some expected. However, some investors remain concerned that the fight against inflation is far from over.
One big hurdle for fighting inflation is the recently released Producer Price Index (PPI) data for January. Core wholesale prices rose up 0.8% for the month, far higher than the 0.3% that many economists were expecting. As for why the high PPI was occurring, some economists theorize that companies are becoming increasingly comfortable passing costs on to consumers.
With the PPI coming in much hotter than expected, it seems clear that the Fed’s fight to tame inflation is far from over. And with inflation likely to persist in the near term, investors may need to consider how macroeconomic conditions will affect their ability to reach their financial goals.
One common financial goal, often plagued by inflationary pressures, is paying for college. This should not come as a particular surprise. When the price of goods rises, it becomes more difficult for investors to send their loved ones to college.
Bond Ladders Offer A Route Past Inflation Worries
This is where distributing ladder ETFs from Northern Trust Asset Management may be able to lend a hand. These funds offer a means to reach a variety of different financial goals through the flexible cash flow that bond ladders can provide.
Just as one example, look to the Northern Trust 2030 Inflation-Linked Distributing Ladder ETF (TIPA ). TIPA’s approach to income distribution could prove to be very effective for investors looking to cover college expenses while mitigating the brunt of inflation.
The fund’s income comes through a portfolio of U.S. Treasury Inflation Protected Securities (TIPS). TIPS adjust their value based on the CPI, and thus can provide stronger protection when inflation is running hot.
As a laddered ETF, TIPA builds its portfolio by allocating a rung for each calendar year between 2025 and 2030. From there, the fund’s portfolio team fills each rung with a collection of TIPS that reach maturity within those respective calendar years. They fill the rungs in a relatively even manner, offering a potentially smoother path to decumulation.
This gives TIPA a potent niche as a vehicle for investors to reach their college savings goals. With transparent, recurring income through an inflation-protected lens, investors can lean on this fund to cover college tuition while accounting for inflation’s unpredictability.
For more news, information, and analysis, visit the Bond Ladders Content Hub.
Disclosures:
ETF investing involves risk, and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV). They are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee
