This week, Craig Siminski, of CMS Retirement Income Planning, shares an article discussing how Treasury Inflation-Protected Securities can help mitigate inflation risk:
Inflation has been relatively low for the last decade, but the economic stimulus packages and recovery from the pandemic are expected to heat up the U.S. economy.
Even so, the Federal Reserve has indicated it will let inflation run above the Fed’s 2% target for some time before raising interest rates.
It’s unlikely the Fed will let inflation get out of control, but even moderate inflation can reduce purchasing power and erode the value of your investments over time. Inflation can be especially challenging for retirees living on a fixed income.
Moving with the CPI
One way to help provide protection against inflation is through Treasury Inflation-Protected Securities (TIPS). The principal value of TIPS is automatically adjusted twice a year to match any increases or decreases in the Consumer Price Index for All Urban Consumers (CPI-U). If the CPI‑U moves up or down, the Treasury recalculates your principal to reflect the change.
A fixed rate of interest is paid twice a year based on the current principal, so the amount of interest may fluctuate. Thus, you are trading the certainty of knowing exactly how much interest you’ll receive for the…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 22 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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