A resident of Peoria, Arizona, Darcy Bergen has served as the president of Bergen Financial Group since 2003. As a financial advisor, Darcy Bergen provides investment management advice to clients, covering areas such as inflation and investments that provide a hedge against it, such as Treasury Inflation-Protected Securities (TIPS).
TIPS are a special type of bond issued by the U.S. government. Like other bonds, they have fixed interest rates and maturity dates which could be five, 10, or 30 years away. They do, however, serve a special purpose of solving one of the risks associated with holding bonds, inflation.
From 2000-2020, inflation, as measured by the Consumer Price Index (CPI), hovered around the historical average of 2.12 percent. Since 2021, however, inflation has risen steadily to new highs, causing concern among investors with bonds in their portfolios. This is because inflation eats away at their real yields. If they hold bonds yielding 3 percent and inflation is at 4 percent, then their real yield is a negative 1 percent.
With TIPS, the principal of a bond adjusts in relation to the CPI, so if the CPI increases, the principal of the bond does too. Adjustments take place every six months, meaning investors get returns that essentially keep pace with growing inflation.
Investors concerned about inflation ought to consider including TIPS in their portfolios. Not only do they offer a real return, but these returns are guaranteed by the federal government.
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