Understanding TIPS: How Treasury Inflation-Protected Securities Work and When to Use Them | Episode 068

Host Mark Trautman returns to Mark’s Money Mind after a trip to Norway and explains Treasury Inflation-Protected Securities (TIPS) and how they differ from standard Treasury Bills, Notes and Bonds.

TIPS have a fixed rate but adjust principal up or down with CPI; interest is paid on the inflation-adjusted principal and at maturity investors receive the adjusted principal or original principal, whichever is greater.

Mark describes comparing yields between Treasuries and TIPS to calculate implied inflation and notes that TIPS are beneficial when inflation exceeds that expectation.

He shares an asset-liability matching example: buying a 10-year TIPS in a traditional IRA to preserve today’s purchasing power for potentially purchasing a single premium immediate annuity (SPIA) at age 70 to cover a retirement income shortfall, and discusses taxes, where to hold TIPS, and buying them via brokerages rather than TreasuryDirect or through mutual funds and ETFs.

Episode Links:

Mark’s Money Mind YouTube Channel

Treasury Yield Curve

Currently Available TIPS

Treasury Direct

Timestamps:

00:00 Show Intro

00:26 Norway Trip Recap