It appears inflation may be on the rise. Certainly the Federal Open Market Committee seems to think so. This is why it continues to incrementally increase interest rates. Further evidence includes an increase in the Consumer Price Index, rising wages, and a tightening labor market.
So what sort of investments might one consider with rising inflation and a stock market at (or near) all-time highs? Bonds… specifically Treasure Inflation-Protected Securities (also known as TIPS).
Most bonds pay out a set interest rate. TIPS on the other hand have some of their repayments linked to the government’s Consumer Price Index. So as inflation rises, you can earn more.
TIPS also behave differently than most bonds from a tax point of view. This means it is important that you understand how they may impact your tax situation.
TIPS are also more volatile than “normal” bonds, so they should be a part of a long-term strategy. Otherwise fluctuations over shorter periods of time may be nerve-racking.
A different choice would be to consider I Bonds. (Also known as Series I Savings Bonds.) These are offered by the U.S. Treasure and are connected to rising costs of living. I Bonds protect against inflation over time and are guaranteed to not lose value during deflationary periods.
You can learn more about I Bonds by clicking here.
Of course, it’s best to have a conversation with your financial adviser to determine the appropriateness of each option based on your current financial situation and your long term goals.