How do Treasury Inflation Protected Securities work?

Treasury Inflation Protected Securities (TIPS) are very similar to US Treasury securities with the same maturity date, except TIPS account for inflation. Inflation is approximated by the consumer price index (CPI), a variable that is reflected in the TIPS yield and coupon rate twice a year. The difference between the US Treasury yield and the TIPS yield is called the spread. The spread is the amount of inflation that is expected per year. TIPS yields do not always result in a successful estimation of the amount of inflation that has taken place over the US bond duration period. TIPS are considered low risk investments, and there are several approaches to investing in them. You can choose ETFs, mutual funds, or buy them directly and avoid management fees. The downside of TIPS is that any gains during the tax year are considered income, which means they also subject to federal taxes.

To learn more about TIPS, check out this link. TIPS




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