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5 Tips For Investing in TIPS: Treasury Inflation Protected Securities

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Robert: The coupon (interest rate) of the bond stays the same like a traditional bond. The Yield of TIPS therefore reacts the same way as a regular T-Bill. That is more demand in the secondary market (US would issue new at lower coupon) will bid up the price of existing TIPS until the Yield matches new issues. That means the US would issue new ones at a lower coupon and existing would adjust (bids) by higher price but lower yield (coupon stays the same!). And vice versa for US issuing new TIPS at higher coupon. Hope this helps as it can get confusing.

Dan of WI 4:00PM January 11, 2010

Indeed boys are very likable. Not sure how that relates to TIPS, though. Any new tips (pun intended) and tricks on investing in TIPS? They are looking decent now, I'm not sure how well the holiday season shopping is going to be this year ...

jk of NY 2:25AM December 01, 2009

I still don't get it. Normally a bonds price goes down as the
interest rate at the moment goes up. Are TIPS immune to this
fluctuatiion?

Robert Remick of AZ 2:13PM August 14, 2009

sure, TIPS are a "sure bet", just like target-date funds are (*were*). any article with the phrase sure bet, no brainer, lazy person's guide to, easy way to...always gives me the most profound case of gas. this one in particular had me go through an entire bottle of Beano. suckers.

homeBiscuitsAndGravy of CA 10:55PM July 13, 2009

Be careful to avoid an apples-to-oranges error when comparing the total return of TIPS (directly held) with shares in a TIPS fund (or ETF). Both forms of investment will pay interest and payments that adjustments for inflation, but the total return on your initial investment can differ widely. It's easy to understand what will happen if you hold TIPS directly - you are guaranteed to receive all of your principal back if own TIPS directly (i.e. through US TreasuryDirect or a broker) AND you hold them to maturity. However, when you hold shares of a TIPS fund or ETF, can not predict what you will see in the end. While you hold your shares, you will have received some of your initial investment back in the form of captial gains, but most of your initial investment will be returned when you finally sell your shares and that amount will depend on the current share price when you sell. You could receive more or less than your initial investment.

Mike of VA 2:59PM July 07, 2009

The TIPs program may sound good, but look at who is asking you to trust them. It is none other than the Federal Government. The government does something very convenient when it doesn't want you to know the truth. It lies. Let's look at Treasuries first. We keep reading news reports about how strong the demand is from foreigners. However, it only appears that way because the Treasury Department changed the way it defines "indirect" bidder. They did this on 1 June 2009 without giving it much fanfare...obviously to deceive the investor. If you want to know the real sentiment from foreign investors, look at the amount of money...the net flow...into or out of the country. In March, while the stock market was still reeling from the financial crisis, there was a net inflow of foreign capital of approximately $10-11 Billion. However, during the middle of that month, the Chinese began questioning our government about whether or not it will devalue the dollar. Since then, foreigners are pulling their money out of the US. In April, the net capital outflow was $53.5 Billion. Since then, the BRIC countries (Brazil, China, Russia and India) have all committed to buying IMF bonds...not US Treasuries. This month, they will purchase $70 Billion in IMF bonds. They are also calling for the US Dollar to be taken off as the world's reserve currency. According to the latest news, American investors are shying away from treasuries. According to a Bloomberg news report from 1 July 09, 30 yr treasuries lost 23 percent of their value since the beginning of the year.
You will no doubt point out that the TIPs treasuries are protected against inflation and loss of value. That is only true if government can be trusted to keep its books straight. But the government doesn't like to do this. It no longer reports the real Consumer Price Index. Instead, its reports the inflation figures EXCLUDING Energy and Food costs. Do you honestly believe that the government will be honest with you when they have been so dishonest about everything else that it has done? Look at Social Security. They told the baby boomers decades ago that if they paid into the Social Security system, then when they retire at 65, they will get a retirement check. But when the baby boomers were getting close to retirement age...the government raised the retirement age. After the government got your money the government refused to hold up its end of the bargain. Instead they moved the goal posts in the middle of the game.
Look at Medicare. They told the baby boomers that if they paid into the system, then when they reach 65 yrs of age, they would have adequate health care coverage. Now, as the baby boomers are just about to go into Medicare, we are told that costs are too high and that the government will have to reduce the costs by not paying for grandma's operation.
Bottom line is, don't trust the government with your money. See what it has been doing with the money it has already taken.

R. P. Reitz of FL 10:44PM July 03, 2009

It seems to me that TIPS, even though they don't keep up with real inflation in the family budget, would be a better place to keep emergency money and spare cash than money market funds. The higher yield and inflation protection would offset the cost of the ETF or fund. As far as just protection from inflation, there are far better places to put money, if the added risk is acceptable.

Jack Hart of FL 9:50AM June 02, 2009

TIPS in theory make sense, especially now with the attempt to reinflate the economy. However, the inflation adjustment is tied to the CPI which grossly underestimates systemic inflation. You do get inflation protection, it's just not all you should get. You can thank Clinton when they pegged TIPS to the CPI.

Randy of AZ 8:06AM May 02, 2009

I was amazed that there was no mention of the fact that one can use the Internet to purchase TIPS through TreasuryDirect. While the enhanced security features of the site are a little daunting to the first-time bond purchaser, where else can you...
..buy directly from the US Government,
..purchase in increments as small as $100,
..receive the High Rate as determined at auction (as TreasuryDirect is non-competitive)
..and all without a dime of fees?
When the yield curve was inverted two years ago, I could easily ladder 28-day notes with proceeds going directly back into my checking account. Now I will be issued my first 5-year TIPS tomorrow (4/30/09), a $500 investment. Next opportunity is the 10-year TIPS on July 2 '09.

BM Barnes of MD 10:14PM April 29, 2009