This week, Craig Siminski, of CMS Retirement Income Planning, shares an article discussing how Treasury Inflation-Protected Securities (TIPS) can help hedge a bond portfolio against inflation:
For the 12-month period ending in June 2022, the Consumer Price Index for All Urban Consumers (CPI-U) — the most widely used measure of inflation — increased 9.1%, the fastest pace in more than 40 years.
The rate may trend downward as the Federal Reserve raises interest rates and supply-chain issues improve. But inflation is likely to be relatively high for some time.
How TIPS Fight Inflation
The principal value of TIPS is automatically adjusted twice a year to match any increases or decreases in the Consumer Price Index. 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 also fluctuate.
Thus, you are trading the certainty of knowing exactly how much interest you’ll receive for the assurance that your investment will…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 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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