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5 Things You Can Do Now to Prepare for Rising Inflation
Gold: No matter what, it's worth something
By John Waggoner, USA TODAY
TIPS: Value rises with the inflation rate
Treasury Inflation-Protected Securities, or TIPS, are long-term IOUs issued by the government. Like other Treasury securities, TIPS pay a fixed rate of interest until they mature.
Unlike other Treasury securities, however, TIPS have an inflation kicker: The government adjusts the principal of TIPS up or down every month according to inflation. If inflation were 3% over the previous year, for example, the government would add 3% to your bond’s value.
The yield on 10-year TIPS reflects Wall Street’s belief that inflation is no danger: It implies an inflation rate of about 1.3% for the next 10 years. If traders are wrong, TIPS could be a bargain now. In addition, the government uses the consumer price index as its inflation measure — a figure that includes energy. If the price of oil were to surge, TIPS would benefit.
Tips:
• You can buy TIPS directly from the U.S. government at no cost. Go to www.treasurydirect.gov to find out how.
• Top-performing TIPS fund: American Century Inflation-adjusted Bond (ACITX), up 24% the past five years.
