7 Essential Strategies to Shield Your Wealth from Inflation in 2025
INFLATION HITS 40-YEAR HIGH - AND YOUR CASH IS SHRINKING FASTER THAN EVER
Forget traditional savings accounts - they're basically paying you to lose money right now. Here's how smart investors fight back.
Diversify Into Hard Assets
Gold, real estate, and yes - cryptocurrencies - act as inflation hedges when fiat currencies devalue. Bitcoin's fixed supply makes it digital gold.
Embrace Dividend Stocks
Companies that consistently raise dividends outperform during inflationary periods. Their payouts actually grow while cash buying power shrinks.
Consider TIPS and I-Bonds
Treasury Inflation-Protected Securities adjust principal with inflation. I-Bonds offer composite rates that outpace CPI - for once, the government helps instead of hurts.
Explore Commodities Exposure
Energy, agriculture, and metals tend to rise with inflation. ETFs make commodity access easier than ever.
Real Estate Investment Trusts
REITs provide property exposure without landlord headaches. Rising rents mean increasing distributions during inflationary cycles.
International Diversification
Not all currencies inflate equally. Global assets provide natural hedging against dollar devaluation.
Cryptocurrency Allocation
Digital assets represent the newest inflation hedge. Fixed-supply cryptocurrencies like Bitcoin can't be printed into oblivion like central bank money.
Because let's be honest - the same institutions that caused this inflation aren't coming to save your portfolio. Time to take protection into your own hands.
A Quick List of Why Savvy Investors Choose TIPS
For investors seeking to safeguard and grow their purchasing power, particularly in an environment of economic volatility, Treasury Inflation-Protected Securities (TIPS) have emerged as a cornerstone of strategic portfolio construction. These securities offer a powerful and direct hedge against the insidious effects of inflation. The following list outlines the key reasons why TIPS are considered an indispensable tool for long-term financial security and growth.
- Primary Benefit: Guaranteed Protection Against Inflation. A direct and powerful hedge that counters the erosion of purchasing power, ensuring that the value of an investment keeps pace with rising costs.
- Core Feature: A Principal that Grows with Prices. Unlike conventional bonds, a TIPS bond’s principal value adjusts upward with inflation, which in turn increases the dollar amount of interest payments.
- A “Real” Return: Earning Above Inflation. The stated “real yield” of a TIPS bond represents the return an investor earns in excess of the inflation rate. This guarantees that wealth grows in real terms, rather than simply preserving nominal value.
- Ultimate Safety: Backed by the U.S. Government. As with other Treasury securities, TIPS are secured by the full faith and credit of the United States government, making them among the safest investments available in the world.
- The Best of Both Worlds: Principal Protection & Growth. At maturity, an investor is guaranteed to receive either their original investment amount or the inflation-adjusted principal, whichever is greater, ensuring protection against deflation and principal loss.
- High Liquidity: The Ability to Sell Anytime. TIPS are marketable securities that can be easily sold on the secondary market before their maturity date, providing a degree of flexibility that other inflation-protected securities do not.
- Flexible Access: Easy to Buy and Manage. TIPS can be purchased directly from the Treasury or through a financial institution or brokerage account. They are also widely available through diversified mutual funds and exchange-traded funds (ETFs).
Understanding the Fundamentals: What Are Treasury Inflation-Protected Securities?
Treasury Inflation-Protected Securities, or TIPS, are a distinct class of marketable bonds issued by the U.S. Treasury. Unlike conventional fixed-rate Treasury bonds, which offer a fixed principal and constant interest payments, TIPS are specifically engineered to provide a direct defense against inflation. The Core mechanism of a TIPS bond is the adjustment of its principal and interest payments in accordance with changes in the Consumer Price Index for Urban Consumers (CPI-U). This unique structure allows the investment’s value to keep pace with the rising cost of goods and services. Since their introduction in 1997, TIPS have become a go-to asset for investors who are concerned about the long-term impact of inflation on their wealth.
The fundamental genius of TIPS lies in their two-pronged approach to inflation protection. First, the principal value of the bond is adjusted for inflation. This is done semi-annually, with the adjustment tied to the CPI-U, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. For instance, if an investor purchases a $10,000 TIPS bond and the CPI increases by 3% over the year, the bond’s principal will also increase by 3%, adjusting its face value to $10,300. This increase is a pivotal part of the investment’s return.
Second, the fixed interest rate, also known as the coupon rate, is applied to this newly adjusted principal. While the coupon rate itself remains constant for the life of the bond, the actual dollar amount of the interest payment changes as the principal is adjusted. This is a critical nuance that can be a source of confusion for many investors. For example, if that same $10,000 TIPS bond has a 2% fixed coupon rate, the first year’s interest payment will be $200. However, after the principal has been adjusted to $10,300, the next year’s annual interest payment will become $206 ($10,300 multiplied by 2%). This mechanism ensures that the purchasing power of the income stream is preserved, as the interest payment grows alongside inflation.
A defining feature that sets TIPS apart from other bonds is their built-in protection against deflation. While the principal value of a TIPS bond will decrease in a deflationary environment—when the CPI-U falls—an investor is guaranteed to receive at least the original face value of the bond upon its maturity. This crucial guarantee serves as a safety net, ensuring that an investor who holds their security to term will never receive less than their initial investment amount. In essence, TIPS provide the opportunity for principal growth in an inflationary environment, while also shielding the original investment from loss during a deflationary period. This dual protection makes them a remarkably resilient and secure investment vehicle.
The Unbeatable Benefits of Adding TIPS to Your Portfolio
For long-term investors, the primary and most significant advantage of TIPS is their function as a powerful and direct hedge against purchasing power risk. In a period of high or unexpected inflation, conventional bonds with fixed income streams may see their value and interest payments eroded, leading to a loss in real terms. TIPS, by contrast, are designed to adjust in lockstep with the Consumer Price Index. The very design of these securities ensures that the purchasing power of both the principal and the interest payments remains intact, offering a degree of protection that is unmatched by most other fixed-income assets.
Beyond simply protecting against inflation, TIPS offer the potential for genuine wealth growth in real terms, a concept often overlooked by investors. This growth is encapsulated in the “real yield” of a TIPS bond. The real yield is the return that an investor earns in excess of the inflation rate, which is already priced into the security. For example, the 10-year TIPS real yield was 1.90% as of August 14, 2025. This means that an investor who purchases and holds that security to maturity is positioned to earn 1.90% annually on their investment
above the inflation rate, regardless of what that rate might be. This is a powerful distinction. A traditional bond with a 5% nominal yield during a period of 6% inflation is effectively losing purchasing power by 1%. However, a TIPS bond with a 1.90% real yield WOULD be growing an investor’s wealth in real terms, even with the high inflation rate. This ability to generate a positive return that outpaces inflation is the definitive component of “safe wealth growth” that TIPS provide.
Furthermore, TIPS are considered among the safest investments available, backed by the full faith and credit of the United States government. This federal guarantee means that the risk of default is virtually non-existent. The combination of this ultimate safety with the principal protection against both inflation and deflation creates a resilient investment. By guaranteeing to return at least the original principal amount at maturity, even if deflation occurs, TIPS offer a secure foundation that other bonds or investment types often lack. For a long-term investor, this dual protection provides a robust bulwark against both credit risk and the erosion of purchasing power, making TIPS an attractive option for a CORE part of an investment portfolio.
The Essential Risks and Trade-Offs You Must Know
While TIPS are celebrated for their inflation-protective qualities and safety, a comprehensive understanding of these securities requires an awareness of their inherent risks and trade-offs. One of the most important considerations is their sensitivity to interest rate risk. Like other bonds, the market price of a TIPS bond will typically decline if real interest rates rise. This risk is particularly relevant for investors who may need to sell their TIPS before the security reaches its maturity date. In a rising interest rate environment, the secondary market value of the bond may fall below its original purchase price, leading to a potential capital loss upon sale. However, for those who intend to hold the bond until maturity, this price volatility is less of a concern, as the full original principal is guaranteed to be returned at the end of the term.
Another important risk to consider is the possibility of deflation. Although periods of widespread deflation are historically rare in the U.S., they can occur. In a deflationary environment, the principal value of a TIPS bond is adjusted downward in response to a decline in the CPI-U. This can lead to a decrease in the bond’s interest payments, as the fixed coupon rate is applied to a smaller principal amount. In such a scenario, a conventional Treasury bond may provide a better return. However, the critical safety net of TIPS is that if an investor holds the security until its maturity, they are guaranteed to receive at least their original principal amount, ensuring that no capital is lost in nominal terms, even with the decline in the bond’s face value.
A particularly crucial and often misunderstood aspect of TIPS is their tax treatment, which can create a tax challenge known as “phantom income.” The increase in a TIPS bond’s principal value due to inflation is considered taxable income at the federal level in the year it occurs, even though the investor does not receive this income in cash. This means that an investor who holds TIPS in a regular, taxable brokerage account could face a tax bill on an unrealized gain without a corresponding cash distribution from the investment to pay the tax. This can present a significant cash FLOW management issue. The most effective way to navigate this challenge is to hold TIPS in a tax-advantaged retirement account, such as an IRA or 401(k). In such accounts, the tax on the principal increase and semi-annual interest payments is deferred until funds are withdrawn in retirement, entirely eliminating the phantom income issue and allowing the investment to grow without annual tax friction.
How to Buy and Own TIPS: A Step-by-Step Guide
The Direct Approach with TreasuryDirect
One of the most straightforward and cost-effective ways to purchase TIPS is directly from the U.S. Treasury through its TreasuryDirect platform. This method is popular because it is free of commissions and fees. To buy a TIPS bond this way, an investor must first open a TreasuryDirect account and LINK it to their bank account. Purchases are made during scheduled auctions, which occur throughout the year for 5, 10, and 30-year maturities. When buying through TreasuryDirect, an investor places a “non-competitive bid,” which guarantees the investor will receive the security in the amount they specify. However, the investor agrees to accept the yield that is determined by the auction’s outcome. All marketable securities purchased this way have a minimum bid of $100 and a maximum of $10 million. A key detail to be aware of is that a new security purchased through TreasuryDirect must be held for at least 45 calendar days before it can be transferred or sold.
The Brokerage Account Route
For investors who prefer more flexibility and control, purchasing TIPS through a bank, broker, or dealer is a popular alternative. This route provides access to TIPS on the secondary market, where existing bonds can be bought from other investors. A major advantage of this method is the ability to place a “competitive bid” at an auction, where an investor specifies the exact yield they are willing to accept. However, with a competitive bid, there is no guarantee of receiving the security, or the full amount desired, if the bid is too low.
Beyond auctions, the secondary market offers significant flexibility. An investor can buy and sell TIPS at any time during market hours, without the 45-day holding period that TreasuryDirect imposes on new purchases. A brokerage account also provides the convenience of a unified portfolio view, allowing an investor to manage all their assets—stocks, bonds, and funds—in one place. However, this flexibility may come at a cost, as a broker or financial institution may charge transaction fees or commissions that could reduce the overall return on the investment.
An Indirect Option: TIPS Funds (ETFs and Mutual Funds)
For investors who prefer a hands-off approach, TIPS can also be accessed indirectly through mutual funds and exchange-traded funds (ETFs) that invest in these securities. This approach provides instant diversification and professional management, as the fund’s holdings are actively managed by a professional portfolio manager. A significant benefit of using a fund is that it allows for easy inclusion of TIPS in tax-advantaged retirement accounts, such as a 401(k) or 403(b), which might otherwise be difficult to do through direct bond purchases.
TIPS vs. I Bonds: The Ultimate Battle for Inflation Protection
Both Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds are securities issued by the U.S. government that are designed to combat the effects of inflation. While their purpose is similar, their structure, features, and implications for investors are significantly different. Understanding these distinctions is crucial for selecting the right inflation-fighting asset for a specific financial situation.
The primary difference lies in their liquidity and marketability. TIPS are marketable securities, meaning they can be bought and sold on the secondary market at any time before maturity. This allows an investor to access their funds if needed, providing a degree of flexibility that other securities lack. In contrast, I Bonds are non-marketable. They cannot be sold on the secondary market and can only be redeemed directly with the U.S. Treasury after a 12-month waiting period. Furthermore, if an I Bond is redeemed within five years of its purchase date, a penalty equal to the three most recent months of interest is applied.
Another key differentiator is the approach to inflation indexing and the resulting tax treatment. With TIPS, the principal value of the bond is adjusted monthly based on the CPI-U, and this adjustment is considered taxable income in the year it occurs. This is the “phantom income” issue discussed earlier, which can be a significant drawback for investors holding TIPS in a taxable account. I Bonds, on the other hand, have a variable interest rate that changes semi-annually based on inflation, but the principal amount itself remains fixed. A major advantage of I Bonds is that the tax on all accrued interest can be deferred until the bond is redeemed or reaches maturity, effectively eliminating the phantom income problem.
Purchase limits also set these two securities apart. TIPS have a very high purchase limit of $10 million for non-competitive bids at auction and no limit on the secondary market, making them suitable for large institutional or high-net-worth investors. I Bonds, however, have a strict annual purchase limit of $10,000 per person for electronic bonds, with an additional $5,000 available for paper bonds purchased with a tax refund. The ability to buy TIPS with pre-tax dollars inside a retirement account is another major advantage that I Bonds do not share.
Frequently Asked Questions (FAQ)
What are the current TIPS real yields?
The real yield is the return that a TIPS bond offers in excess of the inflation rate. As of August 14, 2025, the daily Treasury inflation-indexed constant maturity rates for key maturities were as follows:
What is the breakeven inflation rate?
The breakeven inflation rate is a key metric for comparing TIPS with conventional Treasury securities. It represents the average inflation rate (as measured by the CPI) that would need to occur over the life of the TIPS bond for its return to equal that of a traditional Treasury bond of the same maturity. If actual inflation over that period exceeds the breakeven rate, TIPS are considered the better investment. If inflation falls below that rate, a conventional Treasury bond would have provided a higher return. For example, as of mid-November 2024, the five-year breakeven rate was 2.4%, meaning inflation would need to average at least 2.4% over five years for a five-year TIPS bond to outperform a nominal Treasury.
Are TIPS a good investment right now?
The decision to invest in TIPS depends on an investor’s individual financial goals, risk tolerance, and outlook on future inflation. The real yields on TIPS have recently been NEAR the high end of their 20-year range, which can make them a compelling investment at this time. However, the primary purpose of TIPS is to serve as an inflation hedge. Therefore, they are an effective tool for investors who believe that inflation will remain elevated or reaccelerate in the future.
Can I lose money by investing in TIPS?
Yes, it is possible to lose money on a TIPS investment if it is sold on the secondary market before its maturity date. Like other bonds, the market price of TIPS can fluctuate due to changes in real interest rates, and a sale at a time when rates have risen could result in a capital loss. Similarly, if the principal has declined due to deflation, an investor who sells before maturity may receive less than their original principal. However, for investors who hold their TIPS to maturity, the principal is protected, and they are guaranteed to receive at least their original investment amount.
How are TIPS adjusted for inflation?
A TIPS bond’s principal value is adjusted monthly to reflect changes in the Consumer Price Index for Urban Consumers (CPI-U). The fixed interest rate, or coupon rate, which is set at auction, is then applied to this inflation-adjusted principal to determine the semi-annual interest payment amount. As the principal grows, the interest payments also increase, thereby preserving the purchasing power of the income stream.
