Why You Need TIPS

Treasury inflation-protected securities should be a key part of your holdings. We tell you how -- and when -- to buy them.

Worried about inflation? You should be. True, the recession and the listless economic recovery have kept a lid on prices for the past couple of years. But Uncle Sam's profligate deficits and easy-money policy will likely stoke higher prices down the road.

When inflation starts to bubble up, Treasury inflation-protected securities can turn down the heat on your portfolio. Issued with the full faith and credit of the U.S. government, TIPS are one of the few investments guaranteed to earn, under normal circumstances, a "real," or after-inflation, return. Their principal value adjusts in sync with the consumer price index and, because the coupon payments on TIPS cue off this adjusted principal figure, the bonds pay an inflation-indexed income, too.

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Elizabeth Leary
Contributing Editor, Kiplinger's Personal Finance
Elizabeth Leary (née Ody) first joined Kiplinger in 2006 as a reporter, and has held various positions on staff and as a contributor in the years since. Her writing has also appeared in Barron's, BloombergBusinessweek, The Washington Post and other outlets.