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- How to Invest in Treasury Inflation-Protected Securities
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The U.S. Treasury's inflation-protected securities -- TIPS -- are a very suitable investment for an individual retirement account. Inflation-protected securities in an IRA would make sure the account's value kept up with inflation. An IRA account with a brokerage firm would be able to purchase inflation-protected bonds, which are marketable securities. Look for a broker with transparent bond investing costs before moving your IRA account.
Treasury Inflation Securities
The U.S. Treasury issues inflation-protected bonds with initial maturities of five, 10 and 30 years. A TIPS bond has a fixed coupon interest rate, and the principal value is adjusted by a daily inflation factor. Interest is paid semiannually. The coupon rate is applied to the adjusted principal value, so both the bond's face value and interest payments will increase with inflation. The minimum denomination of a TIPS is $100.
Brokerage Account IRA
You can buy inflation-protected securities through a discount stock brokerage account. Some of the major discount brokers do not charge a commission to buy Treasuries, so compare brokers if you are looking for a new home for your IRA account and if you plan to buy inflation-protected securities for it. After you buy TIPS through a brokerage IRA, the account will show the current market and face value of your inflation bonds. Interest earned from the bonds will go into the cash value of the account.
Treasury securities trade in the secondary market, so you can buy any outstanding TIPS issue. Decide which maturity you want to buy, and look up the current prices and yield of several of the recent issues to see whether there is any yield advantage for one over the others. Because the value of an inflation-protected security increases with inflation, there is less of a risk to buying longer-term bonds, such as the 30-year TIPS, compared to fixed-rate Treasury securities.
Alternative TIPS Investments
Another way to invest in the Treasury's inflation-protected securities is through exchange-traded funds. As of late 2012, about a dozen ETFs had portfolios of TIPS. ETF shares are easy to buy and sell through a discount broker, and they invest in a portfolio of inflation-protected securities across the maturity range. Several of the larger discount brokerages offer commission-free investing in a TIPS ETF. Compare the yields of an ETF with the current yields of the bonds themselves before making an investment.
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