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Tuesday, August 31, 2010

TIPS (Excerpt from WSJ)

What are TIPS? TIPS are the acronym for Treasury Inflation-Protected Securities. TIPS are U.S. government bonds whose principal and yield are linked to changes in the consumer-price index.

If inflation appears, a TIPS investor receives a larger payout than a holder of a comparable Treasury with a set of coupon. The downside is that falling prices mean smaller payments, even if an investor’s principal is guarnteed.