If you are an income investor, consider how inflation can affect your standard of living. Since the last recession almost a decade ago, inflation has barely made a dent in Americans’ income. In October 2017, $1.17 bought what $1 would have in January 2009, as measured by the Consumer Price Index. Not too bad, right?
Consider that 3% annual inflation over 20 years would mean you would need $1.81 to equal the purchasing power of $1 today. So, you can see how even a moderate increase in inflation can wreak havoc on fixed income investors’ portfolios. How do you lessen this risk?
If you want less risk and some inflation protection, you might put some money into Treasury Inflation-Protected Securities (TIPS). When TIPS mature (in five, 10 or 30 years), the U.S. Treasury pays the adjusted principal or original principal, whichever is greater. You can buy TIPS from a bank, a broker or direct at www.treasurydirect.gov.
The information and opinions contained in this web site are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for any damages resulting from the use of the published information. This web site is published with the understanding that it does not render legal, accounting, financial, or other professional advice. Whole or partial reproduction of this web site is forbidden without the written permission of the publisher.