What exactly are TIPS investments? TIPS (Treasury Inflation Protection Securities) are a very conservative investment. These inflation-indexed bonds are the only bonds to have their principal adjusted up or down for inflation or deflation in accordance with increases in consumer prices. The investor must report the change on his income taxes yearly, but he can only take a loss up to the amount of income reported on the bond in prior years. He can carry forward any additional losses to offset income in future years. Interest is also earned with TIPS investments and it must be reported on federal income taxes. The states generally do not tax the interest. Taxes are complicated for such a theoretically simple and conservative investment, but holding in ETFs or mutual funds simplifies that reporting. In 2010, TIPS gained 6.07% but they are down by about 1.77% year to date.

Looking to diversity your investment portfolio with TIPS investments and more? Contact our team of Madison-area financial and investment planners today