I- Bonds and TIPS

For someone wanting safety and better yield than current insured CD’s, are I-Bonds and Tips a better investment?  It is IRA money from recent matured CD’s and our ages are 54 and 58.  When I looked in to them, the small inflation adjustments of the past years didn’t seem to reflect the cost of living that I have noticed in my own life. It seems the government CPI figures are way too low.

SAVAGE SAYS: Aha!  For sure, the government figures do not measure individual exposure to rising prices.  But the official numbers are used to impact your life through cost-of-living adjustments to SS payments, and to impact savings rates on EE and I bonds.  The sad fact is that “chicken money” (money you cannot afford to lose) is paying almost NOTHING these days.  The Fed has its hand on the scale and is keeping interest rates abnormally low — part of a war on savers in an effort to stimulate the economy.

I no longer recommend EE or I bonds because of the way they have changed the inflation adjustment formulas.  And TIPS should be bought through mutual funds and only inside an IRA, where tax considerations are not a factor.

But let me give you something to think about.   The best “hedge” against inflation over the long run is stocks — a diversified portfolio of large company stocks with dividends reinvested.    But that only works if you can invest for the long run — periods of at least 20 years, and if you have the discipline to stick to that plan!  So instead of searching for a bit more yield, and again depending on your total financial picture,  you might take a small portion of that IRA money and invest in a conservative equity/income fund, available at most major fund companies, like T. Rowe Price, Fidelity, or Vanguard.  (And if you do that, make sure you do a direct IRA rollover into the fund so you aren’t exposed to taxes.  The fund company can handle it if you tell them it is an IRA rollover.)