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TIPS: Inflation Destroying Superweapon Or Lame-Duck Investment?
Treasury Inflation Protected Securities (TIPS) are an investment tool specifically designed to protect your purchasing power.
Money loses its purchasing power over time, and there’s serious concern that the United States could see run away inflation sometime soon. Almost 20% of all U.S. Dollars in existence were printed in 2020. You can visually see what that looks like in the chart below:
If you’ve gone to the gas station or grocery store lately, you’ve probably seen the results of this massive money printing campaign. Everything is more expensive.
TIPS are an investment vehicle meant to combat this.
Rather than trying to re-word an existing explanation, I’ll let investment firm PIMCO describe how TIPS work:
Suppose you invest $1,000 in a new 10-year TIPS with a 2% coupon rate. If inflation is 3% over the next year, the face value will be changed to $1,030 and the annual interest payment would be $20.60, or 2% (the coupon rate) of…
