TIPS
are bonds issued by the federal government through a bank, broker, or
the Treasury, for five, ten and twenty year maturities. Their value
grows to the extent of inflation. TIPS also are bought in mutual
funds and ETFs.
Investors
seek inflation protection more than interest, which is relatively low
right now. With little current inflation, returns are insignificant.
Potential inflation makes for their investor attraction.
State
and local taxes do not apply on U.S. Treasury obligations. However,
additional interest paid because of inflation will be subject to
federal taxes.
But
why buy them? I have never considered TIPS a valid bond inflation
advantage, despite the mass of what I feel is
publish-by-rote-publicity that TIPS receive in the financial media.
Moreover,
you can get coming inflation protection elsewhere. Even with other bond
funds, yielding much higher returns. The public has to learn how to
use principles of “duration” which the media is remiss in ever
fully explaining, (See the Earl J Weinreb NewsHole®
comments.)
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