By SmartMoney Staff
Question: I’ve got most of my money in a tax-free municipal bond fund, but there seems to be a lot of fear in the muni market. Are Treasury inflation-protected securities (TIPS) a good alternative and if so, how do I buy them?
– Chris Mooney, Watertown, Mass.
Answer: You don’t want to put all your eggs in one basket, so for asset protection, TIPS are indeed a solid option. They’re government-backed bonds that guard investors from inflation by adjusting the principal to keep up with changes in the consumer-price index. You can buy TIPS directly at government auctions, but the easiest way to invest in TIPS is through a mutual fund or exchange-traded fund. One thing to keep in mind, cautions Matthew Lloyd, chief investment strategist at Advisors Asset Management in Monument, Colo.: Unlike tax-free muni bond funds, TIPS are typically best kept in tax-deferred accounts because the inflation adjustment can be taxed as income.
For More Information:
Send questions to firstname.lastname@example.org. Please include your name and address.