Email FacebookTwitterMenu burgerClose thin

Morningstar Says These Two Assets Can Protect Your Portfolio From Inflation


Let’s face it: the past few years have been pretty scary for investors. From the pandemic to the bear market and inflation, it seems like most people aren’t as concerned with making huge gains as they are with simply protecting their assets and trying to stay ahead of anything catastrophic. While there are many ways to go about achieving this goal, Morningstar analyst Christine Benz has two specific investment choices she thinks can help investors protect their portfolio as the market goes through its current down period: treasury inflation-protected securities (TIPS) and I bonds.

For help figuring out how to protect your portfolio, consider working with a financial advisor.

TIPS Basics

Treasury inflation-protected securities are a fixed-income investment choice regularly issued by the United States Treasury. While these securities are very similar to a conventional treasury bond, the key difference is that the par value of a TIPS will increase in conjunction with the consumer price index. This is especially important right now, as high rates of inflation are leaving many investors worried about their fixed-income securities offering rates that fall behind inflation, in effect losing them money.

TIPS generally come in terms of 5, 10 and 30 years. You get an interest payment twice a year, just like with a regular treasury bond. You can buy them directly from the government at or purchase them from a bank or investment broker. TIPS can also be purchased by institutional investors, so there are funds that invest in TIPS, meaning you can also buy these funds instead of owning TIPS yourself.

I Bond Basics

i bonds tips morningstar

I bonds are also fixed-income products purchased from the government, but they work a bit differently.

I bonds are Treasury bonds that pay two different interest rates — one is fixed at the time of purchase, and the other is adjusted twice a year to keep pace with inflation. Currently, the fixed rate is 0.4%. The composite rate — a combination of the fixed rate and the inflation rate — is 6.89%. The adjusted rate will change again on April 30.

I bonds have a final maturity date of 30 years, but can be cashed in at any time after one year. If you redeem an I bond within five years of purchase, though, you’ll lose three months worth of interest. It’s also worth noting that institutional investors cannot purchase I bonds, so there is no way to invest in these assets via a fund.

A final major difference is that you can only purchase up to $10,000 in electronic I bonds each year — though if you’re married, both you and your spouse can buy up to the limit. These can be purchased at Treasury Direct, the same place as TIPS. You can buy an extra $5,000 in paper I bonds — which can later be converted to digital assets — but only with your tax refund. Explore all the loopholes for buying more than the $10,000 limit here.

I Bonds vs. TIPS: Which is Better?

The obvious advantage of TIPS is that you can buy as much of them as you want. The typical limit of $15,000 per person (and that’s only if you get a big enough tax refund to cover $5,000 in paper bonds) means that the amount of money you can shield from inflation using I bonds is severely limited without exploring other convoluted loopholes.

I bonds have high real yields, and you can cash them in whenever you want. TIPS, though, can be sold on the secondary market, so there is potential to get cash out of them before you reach the maturity date.

Another disadvantage of TIPS is that they have somewhat unfavorable tax treatment — which can be averted if you invest in them in a tax-sheltered account like an IRA or 401(k).

The Bottom Line

i bonds tips morningstar

Both TIPS and I bonds are good investments for those looking for a way to hedge their portfolio against inflation. Both have their merits, and either one — or a combination of the two — could be an effective way to protect your assets during the current inflationary period.

Investment Tips

  • A financial advisor can help you figure out how to best protect your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Use SmartAsset’s free investment calculator to see how your money could grow over the years.

Photo credit: ©, © Khirisutchalual, ©