Article Date:
August 2022

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Inflation Alert: Consider Investing in TIPS

The Fed is finally taking aggressive action to fight inflation, but will it work?


Where’s the stock market headed?


Who knows?

Real estate might be a good inflation hedge, but it’s a non-liquid asset and no sure thing.


Clearly, this is not a great environment for investors or retirement savers.


If you are thinking of investing conservatively but in a way that also offers some inflation protection, here’s an option to consider.


Treasury Inflation-Protected Securities


U.S. Treasury Inflation-Protected Securities (TIPS) are a special variety of Treasury bonds that are adjusted for inflation.


Specifically, in times of inflation, TIPS principal balances are adjusted upward twice a year, based on changes in the Consumer Price Index.


In contrast, significant inflation can punish the conservative investment strategy.


Okay, sounds interesting. How do TIPS work?


TIPS Basics


TIPS are sold at original issuance with terms to maturity of five, 10, and 30 years. They pay cash interest twice a year at a fixed rate that’s set at issuance.


Also, as we mentioned above, during times of inflation, TIPS principal balances are adjusted upward twice a year.


You receive the following if you hold a TIPS bond:


Cash interest payments twice a year at the stated fixed rate. Each semiannual payment equals half the stated rate times the inflation-adjusted principal balance at the time of the payment. So, cash interest payments ... Log in to view full article.

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