TIPS and I-bonds-Its Advantages

While people sort of scoffed at these when they were first introduced, I-bonds and TIPS, which are both inflation indexed securities, have definitely garnered a place for themselves among the portfolios of many investors. For one, they offer diversity. But they also offer more security than even other bonds in the way that they are fixed so that they do not fluctuate with inflation. Of course, they will not increase, but the interest will not decrease either, making them very stable and capable of bringing something to your portfolio.
I-bonds are basically U.S. Savings bonds that have been specifically designed to protect you, the buyer, form inflation. These bonds come in two basic parts, which consist of a variable and fixed interest rates. Basically, the interest is divided into two parts. On one half you have a fixed rate, and on the other half you have a variable rate that changes twice a year with inflation. So, as you can see, these securities even balance themselves out, much less your portfolio.
TIPS are a bit different. With TIPS, you get a set interest rate that remains once the bond is sold. However, the principal of the bond can fall or rise with inflation, making the actual amount being received fluctuate a bit with the market. But the thing about TIPS is that you always at least get the par value back with these types of bonds. The interest on TIPS is usually paid out semiannually, and they are also exempt from state and local level taxes, as are I-bonds.
Both of these types of bonds can really help to bring stability to your investment portfolio, which is why they have gotten more and more popular as time goes by.