Treasury Inflation-Protected Securities (TIPS)

I am concerned about inflation and have heard that TIPS provide a good hedge against rising consumer prices. Can you explain how these securities work? How do I buy them?

TIPS are marketable securities whose principal is adjusted by changes in the consumer price index. With inflation (a rise in the index), your principal increases. With deflation (a drop in the index), your principal decreases but never drops below the amount of your original investment. TIPS pay interest every six months at the fixed rate; however, the amount of interest may vary up or down depending on your principal adjustment

You can purchase TIPS directly from the U.S. Treasury and also through banks and broker-dealers. To set up an account directly with the Treasury, go to http://www.treasurydirect.gov.

Richard S. Campbell, CIMA^®, Senior Vice President, Wealth Management, Portfolio Management Director, Smith Barney, Valdosta, GA