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How to Calculate a TIPS Inflation Adjustment

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Treasury Inflation Protected Securities (TIPS) have the properties of a bond.  Since bonds are just a kind of loan, we can expect to get our money back when the loan period is over.  What makes TIPS especially attractive, however, is that the principal value is adjusted for inflation over time.  This eliminates a bond’s worst enemy.  This valuable feature does have a drawback, though.  There’s more complexity in determining what the value of a TIPS bond is.  Not only are there two ways to consider the value as I discuss in the article: Two Ways to Look at TIPS, the value of the principal is constantly changing.

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