Make a Note on TIPS

Physician's Money Digest, September15 2004, Volume 11, Issue 17

Another red flag:

Note:

Physician-investors who want to protecttheir nest egg from the ravages ofinflation have been flocking to USTreasury inflation-protected securities(TIPS), which boost the value of a bond'sprincipal to keep pace with inflation. TheUS Treasury Department, aware of thegrowing popularity of TIPS, is adding 20-year and 5-year bonds to the 10-yearbond that is currently available. However,the interest rate on TIPS is lower than onconventional Treasuries, so if you'relooking for current income, standardTreasury securities may be a betterchoice. Mutual fundcompanies have rolled out several newTIPS funds recently, a sign that the TIPSbubble may be peaking. You mustpay income taxes each year on theincrease in principal unless the TIPS areheld in a tax-deferred account. For moreinformation or to purchase these investments,visit www.publicdebt.treas.gov.