Bonds vs. TIPS ETF

Government bonds are often not as secure as TIPS ETF bonds due to the possibility of high rates of inflation. Government bonds, such as Treasury Bills, are very popular when the market is unstable. They have very consistent, predictable returns on investment. Unfortunately, when the economy is unstable, inflation can skyrocket, making this modest interest rate not enough to cover the declining value of the dollar.

TIPS ETF bonds were created to solve this problem. TIPS stands for Treasury Inflation-Protected Securities. This means these bonds come with a built in guaranty they will adjust for the rate of inflation at any given time. Even if inflation creeps over 10%, the bonds will also adjust, and the investor cannot net a loss due to inflation alone.

The best time to buy TIPS ETF bonds is during an uncertain economic period when a moderate return is considered a great investment. It is also very wise to carry a balance of TIPS ETF bonds in a retirement account. This provides for some low risk, low reward investments to be mixed in with higher risk, potentially higher reward investments in your total retirement portfolio. Having both types of investments will protect you from large losses should the economy suffer a downturn.