Ryan Ermey at CNBC wrote about friends asking him whether they should buy TIPS and I bonds now that inflation is back in the headlines, and asked me how to think about them. Neither friend was wrong to ask. Both instruments are designed to protect savings from rising costs.
My problem is with the timing instinct. TIPS and I bonds are not broken tools. They just get dusted off every time CPI makes headlines and then forgotten again, which is exactly backwards from how they should be used. Inflation protection bought after inflation has already spiked is a bit like buying a raincoat in the middle of a storm. It still helps, but the price has already moved.
Inflation should factor into your financial planning from the beginning, and depending on your goals both tools can earn a permanent place. TIPS are Treasury bonds whose principal adjusts with the consumer price index; they trade in the market, so you can buy any maturity and any amount, and they belong inside a long-term fixed income allocation. I bonds are savings bonds with a fixed rate plus an inflation adjustment, limited to $10,000 per person per year, locked for one year and penalized if sold within five, which makes them a good fit for a slice of emergency savings you do not expect to need soon.
Own them because inflation exists. Not because it made the news this week.
Read the full article at CNBC →
