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Thoughtleader asks:

<<What are TIPs?>>

I don't know what that particular acronym stands for, but I do know Bill Stanley is referring to the new Series I treasury bond that has built-in inflation protection. They came into being on September 1, 1998, and are offered as an alternative to Series EE Bonds, which will continue to be issued under existing rules. Series I bonds offer some measure of protection against inflation by having the monthly increase in value pegged in part to the Consumer Price Index for all Urban consumers. If inflation rises, eroding the value of fixed investments, the bonds will be increased in value to compensate. The bonds provide a combination of two rates. One is a fixed rate of return (3.30%) that applies to all Series I Bonds issued for the next six months. This rate remains the same for the life of those bonds. (Series I bonds will usually be assigned a lifetime fixed rate in six-month cycles beginning on November 1 and May 1.) The second rate is the inflation component (currently 1.72%), which will be changed each May 1 and November 1 based on the average CPI-U (urban consumer price index) from the prior October through March or April through September. That component is applied to the bond's face value so the principal doesn't erode.

Regards….Pixy
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