With ever growing uncertainty whether our economy will face inflation or deflation in the months to come given recent government spending, what is certain is that no one wants to see their fixed income lose purchasing power. Unlike most bonds that pay out a fixed dollar amount in interest, treasury inflation protected bonds (TIPs) pay out a fixed amount over the consumer-price index (CPI), making them a popular choice for investor anticipating the economy to experience inflation. If inflation is higher than projected, the government adds to your principal on a TIP and makes up the difference!
Not only does owning TIPs allow one to keep up with monthly bills that are increasing in step with inflation, they are an important asset class to consider when determining an asset allocation strategy. TIPs enable one to further diversify a portfolio. Bonds are ideal for those not able to stomach much risk and TIPs in particular protect one's fixed income from eroding.
Luckily, one needs to only purchase the exchange-traded fund (ETF) iShares Barclay TIP Bond Fund (NYSE: TIP) to own a basket of treasury inflation protected bonds available by the U.S. Treasury. TIP happens to be the only inflation protected bond ETF available today, making it the perfect choice to add to your portfolio. This ETF fund costs you only .20% to track the total return and performance of U.S. Government inflation protected bonds and gives you a great way to invest in bonds that will pay out proportionally above the consumer price index.
Below is a list of just some of the Treasury Inflation Protected bonds you'll own with TIP:
| % of Fund | Name | Coupon | Maturity | Ratings (Moody's/S&P) |
| 5.94% | TREASURY (CPI) NOTE | 2.38 | 1/15/2025 | TSY /TSY |
| 5.69% | TREASURY (CPI) NOTE | 3.88 | 4/15/2029 | TSY /TSY |
| 5.41% | TREASURY (CPI) NOTE | 3.00 | 7/15/2012 | TSY /TSY |
| 5.05% | TREASURY (CPI) NOTE | 2.00 | 1/15/2014 | TSY /TSY |
| 4.90% | TREASURY (CPI) NOTE | 1.88 | 7/15/2013 | TSY /TSY |
| 4.68% | TREASURY (CPI) NOTE | 3.62 | 4/15/2028 | TSY /TSY |
| 4.60% | TREASURY (CPI) NOTE | 2.00 | 7/15/2014 | TSY /TSY |
| 4.49% | TREASURY (CPI) NOTE | 1.62 | 1/15/2015 | TSY /TSY |
| 4.01% | TREASURY (CPI) NOTE | 2.50 | 7/15/2016 | TSY /TSY |
| 3.98% | TREASURY (CPI) NOTE | 1.88 | 7/15/2015 | TSY /TSY |
*Holdings are subject to change.
Mitch Tuchman founded MarketRiders, an investment website teaching individuals how to save on fees and be their own investment advisor using low cost ETFs and asset allocation.
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Reader Comments (Page 1 of 1)
9-24-2009 @ 5:54AM
al coholic said...
Since the government that pays higher prices for the money it borrows if inflation rises and is the source of the information that sets the numbers on said inflation and, most importantly, controls the criteria for the calculations it should come as no surprise to anyone that our "official" inflation numbers are suspiciously low.
Anyone who has paid their electric bill, bought groceries, insurance, or incurred any medical bills knows better.