This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Now's the Time to Consider Inflation Protection

The Federal Reserve last week said it would buy $300 billion in long-term government bonds and $750 billion in mortgage-backed securities to help resolve the financial crisis. These actions will expand the money supply, which may lead to faster inflation. A weak economy and higher prices is a bad combination.

As we stare down the barrel of this threat, it makes sense to add inflation protection to a diversified portfolio with Treasury Inflation-Protected Securities, or TIPS. There are two exchange traded funds and mutual funds that provide access to TIPS.

The biggest difference between the funds and the actual bonds is that the bonds typically have a lower yield than traditional Treasury issues and the par value increases or decreases by the rate of change in the consumer price index (CPI). The funds typically pay out the CPI adjustments as part of the dividend.

The iShares Barclays TIPS Bond Fund (TIP) and the SPDR Barclays Capital TIPS ETF (IPE) are the two ETFs. They share the same benchmark. TIP, an older issue, has about 20 times the average daily volume of IPE.

Most mutual fund families and bigger discount brokerage firms have TIPS funds. Here are some:

  • Vanguard Inflation Protected Securities Fund(VIPSX)
  • Schwab Inflation Protected Investor Shares(SWRIX)
  • Fidelity Inflation Protected Bond Fund(FINPX)

The Vanguard fund is the cheapest of the traditional mutual funds, with a 0.20% fee. It hasn't paid a capital gain in the past few years. TIP and IPE haven't either.

There is an important thing to understand: The funds might not pay a dividend, depending on the CPI. For example, Yahoo Finance will tell you that TIP yields 5.89%. That isn't what you will get -- that number is based on the past year's dividends. Over the next year, the yield will be more or less, but to give you some idea of what to expect, TIP hasn't paid a dividend since October 2008.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TIP $114.48 -0.34%
IPE $57.05 -0.70%
AAPL $93.59 -0.16%
FB $118.55 0.82%
GOOG $698.14 0.74%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,082.49 +17.19 0.83%
NASDAQ 4,819.3120 +43.9540 0.92%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs