7 Ways to Hedge Against Inflation
Jim Woods, June 24, 2009
Free Trading Guides
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Inflation Hedge #6: TIPS
If you want to be very conservative in your fight against inflation, then all you need to do is get a little "TIPSy" by using TIPS, or Treasury Inflation-Protected Securities. As the name suggests, these bonds are a type of Treasury security that offers protection from inflation. Like other Treasury securities, an inflation-indexed security pays interest every six months, and pays out the principal at maturity. The difference with TIPS is that the coupon payments and underlying principal are automatically increased to compensate for inflation as measured by the consumer price index (CPI).
One way to get broad exposure to TIPS is via the iShares Barclays TIPS Bond Fund (TIP). This ETF is designed to achieve investment results that correspond generally to the price and yield performance of the inflation-protected sector of the United States Treasury market. With TIP, getting TIPSy is easier than a night out at your local pub.
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