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TIPS To {Hedge|Protect} Against Inflation

The government has {created|made} {record|achievement} in {spending|expenditure} {which|that } include $108 trillion in unfunded liabilities {for|intended for} social security, Medicare {and|plus} {new|another} universal healthcare benefits. This has put the {nation|country} {at|on} {risk|danger|jeopardy}. With the {interest rates|rates of interest} close to zero, the Federal Reserve {cannot|are not able to} take one {conventional|conservative} {step|action} – reducing short-term rates – to {restore|reinstate|re-establish|bring back} the weakened economy.

In this {difficult|hard} economic {slump|crash|collapse} or double-dip recession, politicians – with the reluctant {assistance|help|guidance} of the Fed – {could|might} {opt|decide} to spend {even|still} more massively to {try|attempt} to jump-start the {economy|financial system}. The {result|consequence|outcome|end result} {could|might|can} be stagflation: slow growth {with|along with|as well as} higher inflation.

Inflation is the curse to the debt holders. {But|However} it is a blessing to the debtors – and Uncle Sam is the {biggest|chief} of them – as they can pay the fixed obligations with increasingly worthless currency.

Are you scared of {rising|growing} inflation? And {want|like|would like} to make sure better {returns|profits} over inflation from your {investments|savings} at {minimum|small amount of|least} risk? {Then|In that case|So therefore|Therefore} Treasury Inflation Protected Securities (TIPS) {may|can|could} be the {best|most excellent} investment {option|choice|opportunity} {for you|for everyone}.

Treasury Inflation Protected Securities (TIPS) are {also known as|also referred to as|often known as} Treasury Inflation Index Securities and Real Return Bonds (RRB). TIPS are ‘safest of the safe’. There is {minimum|small amount of|least} downside risk on {investing|investment}. TIPS are long-term fixed income investments protected against fluctuations in the rate of inflation.

But why {use|employ|utilize|take advantage of|make use of} TIPS as your {hedge|protect} against inflation, rather than a traditional hedge, such as precious metals? You can {use|utilize|benefit from|make use of} both as your hedge against inflation. {But|However} always remember, precious metals like gold and silver are less than {perfect|ideal|complete|absolute} hedges.

Gold and silver have {performed|accomplished} {extremely|very|exceptionally} well over the last {10|ten} years. Gold has more than quadrupled. Silver has {done|ended} {even|still} better. But {20|twenty} years before that were a total disasters.

But no {matter|problem} {whether|if|even if} inflation is low or high, TIPS will {protect|guard|safeguard} you from the risk {on|on top of} your investment. How?

Here are the {advantages|benefits} of buying Inflation-Protected Treasuries:

Regular Interest Payments: Just {like|similar to} a regular Treasury bond, TIPS {pay|reimburse} interest regularly once in six months. {But|However} unlike traditional bonds, your principal grows {every year|yearly} by the amount of inflation, as {measured|calculated} by the consumer price index (CPI). That is when inflation rate is up; value of TIPS is also increased automatically. In other words, inflation protection is available on both capital and investment. The interest paid once in every six months {also|as well} {increase|grow|escalate|rise} by the amount of inflation.

Tax {Benefits|Advantages}: The interest you receive from TIPS investments are {exempted|freed} from state and local income taxes (but not federal).

TIPS are {also|moreover} {less|not as much of} {volatile|unstable} when compared to the traditional bonds. The {yield|returns} on these TIPS funds is {currently|at present|presently} {about|just about} 2.5% ({plus|as well as|along with|and also|and} whatever inflation is going {forward|ahead}).

{Another|One more} {important|main|worthy|influential} reason to {consider|think about} adding TIPS to your portfolio is the {great|excellent} portfolio diversification {benefits|advantages} they bring. This reduces the {overall|total} risk and / or {volatility|instability} of your portfolio over time. TIPS bond yields are {low|little|minimal} or negative correlation with the performance of many other traditional investments such as {stocks|shares} and {regular|normal} bonds.

{Rising|Increasing|Growing} inflation {chances|probability} are {good|helpful|beneficial} for TIPS {returns|yield|profits}, {but|however} in the short {term|period} are negative for the returns of {stocks|shares} and bonds and vice versa.

TIPS can be {bought|purchased} in {three|3} ways:

1. Directly: {You can|It is possible to|You are able to|One can} {buy|purchase} TIPS directly from the U.S. Treasury or {through|via} a bank, broker, or dealer. You can {learn|find out|discover|understand} more about buying TIPS directly at http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_buy.htm

2. Through the Vanguard Inflation-Protected Securities Fund (VIPSX).

3. Through its ETF equivalent – the iShares Barclays TIPS Bond Fund (NYSE: TIP)

{Purchasing|Buying} TIPS through mutual funds offer more flexibility.

{There are several|There are {many|various}} {advantages|benefits} of buying TIPS

1. TIPS are very {good|safe|advantageous} for long-term investments.
2. TIPS are {excellent|outstanding|superb} ways to diversity your portfolio {which|that } {reduces|minimizes} {total|whole} portfolio risk.
3. TIPS are government guaranteed.
4. TIPS are less {volatile|unstable} than traditional bonds.
5. TIPS are {useful|helpful|advantageous|beneficial} when inflation rates are {expected|projected} to {move|go} up {and|plus|also} when {economy|financial system} slows down.
6. Investment on TIPS {requires|needs|involves} less active investment management {thus|therefore|so|hence} {favor|help} both {beginners|newbies} and {experienced|skilled} {investors|traders}.

{Some|A few} {investors|traders} {complain|make a complaint|object} that TIPS hasn’t done anything {exciting|interesting} {recently|in recent times}. {This is not|This isn’t} {true|right|correct}. We’ve been in the {control|influence} of disinflationary forces, not inflationary ones. That will not {change|alter} next week or next month.

But as the deficit {keeps|continues} {increasing|growing} {which|that } makes people {unhappy|sad}, pressure will increase on the government to do “something”. That “something” {could|can|possibly will} be a {decision|result} to inflate our way out of this mess, rather than risk the {kind|type} of deflationary spiral that Japan has suffered over the past {two|2 } decades.

{Keep in mind that|Remember that|Understand that}:

• The Fed has {already|by now} taken interest rates {near|close|nearing|almost|nearly} to zero.
• Congress has {already|by now} tried a huge fiscal stimulus.
• The Federal Reserve has {already|by now} created trillions out of thin air to mop up worthless securities.

There are chances of {rise|increase} in inflation if the economy stumbles {again|once more} {which|that } forces to the government to take further action, it {could|can|possibly will} be even {more|further} reckless.

{Some|A few} libertarians {and|as well as} laissez-faire capitalists will refuse to {buy|purchase} TIPS. {But|However} other inflation hedges sometimes {don’t|do not|will not|never} work. {So|Hence} there is no {small|little} risk taking {another|one more|an extra|an alternative} {approach|method}.

In total, TIPS is the only investment that {guarantees|ensures} a {return|profit|yield|gain} that exceeds inflation in the years {ahead|in the future|to come}. And it is in fact an {essential|necessary|vital|important|crucial|key} {element|component} of your portfolio.

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