Inflation-Indexed Security

An inflation-indexed security is a bond or other asset that is indexed to a recognized, national inflation index on a day-to-day basis.

For example, the Treasury Inflation Protected Securities (TIPS) bond offers a coupon rate, plus the inflation rate tied to the U.S. Consumer Price Index.

You might invest $1,000 in TIPS bond at a 2% interest rate, and get an additional 2.5% if the CPI increases by that level. That would turn $1,000 into a whopping $1,045 by the end of the year, which is less than what a traditional market return would be. However, it's considered a good hedge against a sharp uptick in inflation.

But let’s say that you own a TIPS bond, and Peter Schiff predicts that the U.S. dollar is going to suffer from manic-hyperinflation...then congratulations in your buying decision.

That TIPs bond with the 2% coupon rate and the 3,000% hyperinflation rate can help you obtain more worthless currency to burn for warmth during the downfall.

The bad news is that you’re probably going to be eating cat food and staving off roaming packs of zoo animals with broomsticks in the event that these assets serve a reliable purpose. And if you’re buying U.S. savings bonds, you’re either doing this for a 10-month old, or you need to read more definitions to help you earn a better return on your investment. Maybe even consider a premium trading course.

Oh, and if you’re reading this because it’s critical to your job, you should leave your desk and go work for any other department in the bank. Try a teller job; it’s more people-friendly.