Climbing the TIPS Ladder
Treasury Inflation-Protected Securities (TIPS) are securities issued by the government that adjust for inflation based on the value of the Consumer Price Index (CPI). Unlike other fixed-income investments, the face value (and therefore the interest income) varies over time based on the amount of inflation adjustment. This makes TIPS a good choice for a laddering strategy with medium- to longer-term fixed income investments.
Many investors ladder Certificates of Deposit (CDs), meaning they are purchased at regular time increments so there are always some that are maturing and available for cash if needed, or for reinvestment if they are not. You balance the maturity periods to keep a relatively stable and predictable income.
The downside of this with CDs is the relatively short timeframe (often a year or less) before maturity, and the fact that inflation can easily erode the relatively low returns from a CD. TIPS have maturity terms of 5 years, 10 years, or 30 yea...
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