Vanguard Digital Advisor: Why No Short-Term TIPS Fund?

Vanguard's Digital Advisor is a robo-advisor that provides automated, low-cost investment management services. It offers a variety of portfolios, each tailored to a specific risk tolerance and investment horizon. However, one notable omission from the Vanguard Digital Advisor lineup is a short-term TIPS fund.

What are TIPS?

TIPS are Treasury Inflation-Protected Securities that are issued by the U.S. government. They are designed to protect investors from inflation by adjusting their principal value based on the Consumer Price Index (CPI). This makes them an attractive investment option for investors who are concerned about the potential impact of inflation on their portfolio.

Why Doesn't Vanguard Digital Advisor Offer a Short-Term TIPS Fund?

There are a few reasons why Vanguard Digital Advisor does not offer a short-term TIPS fund.

• Short-term TIPS have lower returns. TIPS with shorter maturities typically have lower yields than TIPS with longer maturities. This is because the shorter the maturity, the less time inflation has to erode the value of the principal.
• Short-term TIPS are more volatile. TIPS with shorter maturities are also more volatile than TIPS with longer maturities. This is because the shorter the maturity, the more the price of the TIPS will fluctuate in response to changes in interest rates.
• Vanguard Digital Advisor is designed for long-term investors. Vanguard Digital Advisor is designed for investors who are looking to invest for the long term. Short-term TIPS are not a good fit for this type of investor because they have lower returns and are more volatile.

What Should Vanguard Digital Advisor Investors Do Instead?

If you are a Vanguard Digital Advisor investor and you are concerned about the potential impact of inflation on your portfolio, there are a few things you can do:

• Invest in a TIPS fund with a longer maturity. TIPS with longer maturities have higher yields and are less volatile than TIPS with shorter maturities. This makes them a better investment option for long-term investors.
• Invest in a TIPS ETF. TIPS ETFs offer a way to invest in TIPS without having to buy individual TIPS. This can be a more convenient and cost-effective option for some investors.
• Consider other inflation-protected investments. There are other investments that offer protection from inflation, such as real estate and commodities. These investments can be a good way to diversify your portfolio and reduce your exposure to inflation.

Conclusion

Vanguard Digital Advisor does not offer a short-term TIPS fund because short-term TIPS have lower returns, are more volatile, and are not a good fit for long-term investors. If you are a Vanguard Digital Advisor investor and you are concerned about the potential impact of inflation on your portfolio, you should consider investing in a TIPS fund with a longer maturity, a TIPS ETF, or other inflation-protected investments.