TIPS.
In plain English
TIPS (Treasury Inflation-Protected Securities) are U.S. government bonds whose principal value adjusts daily based on the monthly Consumer Price Index. A 5-year TIPS that starts at $1,000 face value will have its principal mark up if inflation runs at 3%, ending with a higher face value at maturity. The semi-annual coupon (interest rate) is fixed when you buy, but it gets paid against the inflation-adjusted principal, so your dollar interest payments rise with inflation too.
01Why it matters
TIPS are the only U.S. government bond designed to guarantee that purchasing power is preserved, by structural mechanism rather than promise. For retirees living off bond income or anyone with a long-dated obligation in real terms (future tuition, future medical care), TIPS solve a problem that nominal Treasuries do not.
02The math, step by step
A 10-year TIPS issued in 2014 at a 0.625% fixed real yield, held to 2024, paid out total real returns of about 0.6% per year above CPI. The same nominal Treasury would have lost ground to the 2021-2023 inflation spike. TIPS bondholders did not.
03What this is NOT
I-Bonds are savings bonds bought directly from TreasuryDirect with a $10,000 annual cap per person; can not be sold to others. TIPS are marketable bonds (trade in the open market) with no purchase cap; held in brokerage accounts.
04Receipts
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