economy
These bonds protect against inflation. How to optimize them for your portfolio
Treasury inflation-protected securities are back in the mix as investors grapple with worries over higher prices.
TL;DR
- Rising oil prices and unresolved peace talks are reawakening investors' inflation fears.
- Treasury inflation-protected securities (TIPS) adjust their principal based on inflation, providing income that can keep up with rising consumer costs.
- TIPS are pegged to the Consumer Price Index, and at maturity, investors receive the greater of the inflation-adjusted price or the original principal.
- These bonds carry duration risk, meaning their prices can be sensitive to changes in interest rates, as seen in 2022 performance.
- Investors can gain TIPS exposure through direct purchase from the government, by building a TIPS ladder, or by investing in TIPS-focused exchange-traded funds (ETFs).