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Inflation-Protected Treasuries

How can I make sure my bond portfolio won’t lose ground to inflation?

Try TIPS, short for Treasury inflation-protected securities.

TIPS are Treasury bonds with a twist: Their principal value is adjusted every six months based on changes in the consumer price index (CPI). So if inflation as measured by the CPI were to climb, your TIPS’ principal value would climb as well — meaning you’d receive larger interest payments as well as a larger principal repayment when you cashed your bond in. (TIPS’ principal values can decline in the event of deflation, but you’ll always receive at least your original principal amount at maturity.)

TIPS typically offer relatively low yields compared to ordinary Treasury securities. But fears about deflation recently have caused many investors to avoid inflation-adjusted bonds, causing the gap between TIPS’ yields and Treasury yields to shrink — possibly making this a good time to buy these ultra-safe securities.

Editor's Pick

  • TIPS Look Attractive Now

    The flood of investment into Treasuries has made TIPS a great investment right now. Here’s why.

  • Where to Buy Them

    Information from the U.S. Department of the Treasury about how to buy TIPS.

  • TIPS vs. I-Bonds

    Both of these government issue bonds help you hedge against inflation. Here’s a more detailed look at what each does, as well as their benefits and risks.

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  • Investing in 2010: Stocks, Bonds and Commodities

    As the U.S. economy muddles along in 2010, invest in mutual funds and ETFs that own high-quality domestic and foreign stocks, TIPs and other short-term bonds, and commodities. by Lewis Braham

    Articles | Dec 16, 2009

  • Why You Shouldn't Bash Cash

    Today?s seemingly microscopic yields on money market funds aren?t so bad when you take into account the fact that inflation has actually been negative for much of the year. As a result, real returns are actually fairly decent. Here?s how to think about the role of cash in your portfolio,...

    Articles | Nov 19, 2009

  • Best Buys on Bonds

    Despite the nascent stock-market rally, the once-stodgy bond market remains the hot new thing for wary investors. Corporate and municipal bonds offer some temptingly high yields. Treasuries promise a safe haven. But the market is riddled with risks. Learn how to avoid them... Although stocks have...

    Articles | Mar 17, 2009

  • The Dish on Diversification

    Yes, the strategy failed you in the crash, as virtually every asset class except Treasuries took a heart-stopping dive. But if you’re hoping to climb out of the hole, it’s still your best alternative. Why now may be the time to begin buying stocks, REITs and commodities again... It’s long...

    Articles | Mar 27, 2009

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