subject: Treasury Inflation Protected Income Securities [print this page] The term "Treasury Inflation Protected Securities" can be a confusing one, especially for people who are just starting planning their retirement. These securities aren't investments that actually protect your money from escalating interest rates. New investors who don't know what TIPS really are can make mistakes that can put their nest eggs in danger.
The CPI or Consumer Price Index equates inflation to the costs of long-range investments, helping you determine the value of your investment returns. TIPS counteract inflation and work a lot like conventional securities. One considerable difference between similar investments and TIPS is that the latter increases with the CPI, shielding your returns when inflation occurs. Low trading activity gives investors big returns with the direct link between CPI and TIPS growth. However, the popularity of TIPS has attracted numerous investors and increased trading activity, resulting in the lower yield of 1.5% today versus the 4% TIPS buyers used to get a decade ago.
Retirees looking for guarantee-protected and stable investments for their nest eggs should buy Treasury Inflation Protected Securities, which they should get at the shortest terms available. Short terms are recommended because the value of TIPS has a greater likelihood of dropping over a longer time frame. Interest rates will eventually increase, as will inflation, which will help alert you if you need to move on before your profits suffer.
If you're considering Treasury Inflation Protected Securities to pad your retirement funds, call up your investment advisor after you do your research. Self-study and professional help will let you know how these investments work, and help you manage TIPS and pull out before you lose money.
There are many potential expenses in your retirement years that threaten your retirement income. Medical expenses that aren't covered by medicare, extended stays in a long term care facility or home health care expenses can all quickly eat away at the retirement nest egg that you've worked so hard to build.
