TIPS Bonds Offer Retirees Inflation Protection Plus a Profit
Often overlooked by retail investors, TIPS, or Treasury Inflation-Protected Securities, are U.S. government-backed, fixed-income securities that offer inflation protection and often more. After jumping 2% on all maturity lengths last month, TIPS yields are offering the best yields in more than 10 years.
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Treasury Inflation-Protected Securities Explained
TIPS are unique because their payout will change depending on inflation specifically the consumer price index(CPI) unlike traditional Treasury bonds.
The bonds are made up of two parts: the purchase price, or principal, and the yield. The yield is set when you purchase the bond but unlike other bonds the principal is adjusted for inflation every six months. When the bond matures if the adjusted principal is higher than the original price, investors get that gain. If the adjusted principal falls to less than the original price, the bondholder still gets their original purchase price.