Why Would Anyone Buy Inflation-Protected Investments?

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  • The idea: Push inflation-protected money into the future, when you will need it in retirement.
  • Both I Bonds and TIPS are super safe investments that can be purchased with zero commissions and fees.
  • The only risk in purchasing 'inflation protection' is that you will receive a slightly lower return than with nominal investments. The cost is very low.

Starved Rock State ParkI recently met three college friends for a day of hiking in northern Illinois (yes, you can hike in northern Illinois; just check out Starved Rock State Park.) When we sat down for lunch in the park's beautiful lodge, we got to talking about things we were doing for fun or profit.

"I've been writing about inflation-protected investments for a financial website," I said.

Blank stares.

"It's something I've been interested in for a long time, so I began writing about it," I said. "Trying to build up a following."

Blank stares.

"You've never heard of Treasury Inflation-Protected Securities or I Bonds?"

My friends shook their heads. Then, one of them said: "Is this some sort of scam?"

My friends are college-educated and very intelligent. In that moment, I realized that most people - maybe 95% of Americans - have no idea what inflation-protected investments are or how they could fit into a portfolio.

What are inflation-protected investments?

The only two inflation-protected investments I follow or care about are both issued by the U.S. government: Treasury Inflation-Protected Securities (OTCPK:TIPS) and Series I U.S. Savings Bonds, also called I Bonds. Both can be purchased directly from TreasuryDirect.gov without fees or commissions. Both can be considered among the safest investments on earth, fully backed by the U.S. government. So, let's take a deeper look at these two investments.

The case for and against I Bonds

I Bonds are the simplest, no-hassle way to add inflation protection to your portfolio. The minimum purchase is $25, and the I Bond's value will continue to climb tax deferred with inflation until maturity in 30 years - or until you sell the I Bond. There is no secondary market for I Bonds, so you simply hold them and sell them. The return you receive will closely match or exceed the Consumer Price Index.

This article was written by

Tipswatch profile picture
I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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