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Inflation-Linked Bonds: A Key Strategy for Investors

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  Published in Stocks and Investing on Wednesday, January 28th 2026 at 13:56 GMT by CNBC
      Locales: Not Specified, California, UNITED STATES

Wednesday, January 28th, 2026 - As economic uncertainty persists and the shadow of inflation continues to loom, investors are increasingly seeking strategies to protect their portfolios. According to Kathy Jones, Head of Fixed Income at Charles Schwab, one asset class deserves serious consideration: inflation-linked bonds. Speaking on CNBC's "Squawk Box" earlier today, Jones argued that "nearly every investor could benefit" from incorporating these bonds into their investment mix.

Understanding Inflation-Linked Bonds

Inflation-linked bonds, also known as Treasury Inflation-Protected Securities (TIPS) in the United States, are designed to shield investors from the erosion of purchasing power caused by rising inflation. Unlike traditional bonds which pay a fixed interest rate, the principal value of an inflation-linked bond adjusts with changes in the Consumer Price Index (CPI). This means that as inflation rises, the principal increases, and vice versa. The interest payments are then calculated on this adjusted principal, providing a stream of income that keeps pace with inflation.

Why Now? The Current Economic Landscape

The timing of Jones' recommendation is particularly pertinent. While inflation has cooled somewhat from its peak in 2024, it remains stubbornly above the Federal Reserve's 2% target. Coupled with persistently high interest rates, this creates a challenging environment for investors. Traditional fixed-income investments, like conventional bonds, can suffer when interest rates rise, as their fixed payments become less attractive compared to newer, higher-yielding bonds. Inflation further exacerbates this problem by reducing the real return - the return after accounting for inflation - on these investments.

"They're not going to deliver a lot of yield, but they'll protect you from inflation," Jones emphasized. This acknowledgement is crucial. Inflation-linked bonds often offer lower nominal yields than other bond types. However, the real yield - the yield adjusted for inflation - can be competitive, and the principal protection is the primary benefit.

Beyond Bonds: Diversifying with Real Assets

Jones didn't limit her advice to just inflation-linked bonds. She also highlighted the potential of "real assets" like commodities and infrastructure as tools for diversification and inflation protection. Commodities, such as precious metals, energy, and agricultural products, tend to perform well during inflationary periods as their prices often rise alongside general price levels. Infrastructure investments, including projects like roads, bridges, and utilities, can provide stable cash flows and a hedge against inflation due to their essential nature and long-term contracts.

Who Should Consider Inflation-Linked Bonds?

Jones' assertion that "nearly every investor" could benefit suggests a broad appeal. This isn't just for high-net-worth individuals or sophisticated investors.

• Retirees: Protecting a fixed income stream from inflation is critical for retirees who rely on their investments to cover living expenses.
• Those Saving for Long-Term Goals: Individuals saving for retirement, education, or other long-term goals can benefit from the inflation protection offered by these bonds.
• Risk-Averse Investors: Inflation-linked bonds are generally considered less risky than stocks or other more volatile assets.
• Investors Seeking Portfolio Diversification: Adding inflation-linked bonds can help reduce overall portfolio risk by providing a hedge against inflation and interest rate fluctuations.

How to Invest in Inflation-Linked Bonds

Investors can access inflation-linked bonds through several avenues:

• Direct Purchase: TIPS are sold directly by the U.S. Treasury through TreasuryDirect.gov.
• Mutual Funds and ETFs: Numerous mutual funds and exchange-traded funds (ETFs) specialize in inflation-linked bonds, offering instant diversification.
• Individual Bonds: Inflation-linked bonds can be purchased through a broker, although liquidity may be lower than for more common bond types.

The Bottom Line

In a world grappling with persistent inflation and economic uncertainty, Kathy Jones' recommendation to consider inflation-linked bonds is a sound one. While not a high-yield investment, their ability to preserve purchasing power makes them a valuable addition to a well-diversified portfolio. Combining inflation-linked bonds with other real assets can further enhance inflation protection and provide a more resilient investment strategy for the years ahead.