A balanced investment strategy should include as a minimum; stocks, bonds and fixed interest savings accounts.
One form of bonds is Treasury Inflation Protected Securities, otherwise known as TIPS. They can be a great idea for retirement investors especially.
TIPS can provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index.
When your TIPS matures, you will be paid the adjusted principal or original principal, whichever is greater. So if there has been deflation, you’ll receive just your principal.
TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
With TIPS therefore, as inflation rises, so do the interest payments and the face value of your TIPS. That provides a hedge against inflation – critical if you have concerns about outliving your money in retirement.
TIPS can be purchased on the government Treasury.gov website.