TAKE THESE TIPS

September 16, 2008
Michael Sheehan

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Drawback:

Inflation is tame, but that means itmay be time to buy inflation insurance,which comes in the form of USTreasury inflation-protected securities(TIPS; 800-722-2678; www.publicdebt.treas.gov). TIPS are payingabout 2.75%, compared with 4%on a fixed-rate US Treasury bondwith the same maturity. But TIPSkeep up with inflation because theprincipal goes up when the consumerprice index goes up. If the inflationrate is 2%, a $1000 TIPS is revaluedat $1020 and the fixed interest rate ispaid on the higher amount. When thebond matures, you get back the inflation-adjusted principal amount. You pay tax on the amountadded to your principal every year,although you don't collect it until yousell the security or it matures. If thatturns you off, look into inflation-protectedSeries I Savings Bonds (www.savingsbonds.gov), which let youavoid paying taxes on any earningsuntil you redeem them.