Short Term Investments of Treasury Securities
As a refresher, treasury securities are bonds issued by the U.S. Treasury and backed by the government’s credit – and the range of treasury products is pretty extensive. While you can invest in a variety of treasuries including treasury notes, treasury bills, floating rate notes (FRNs) and more, a popular option for short term investments are treasury inflation-protected securities (TIPS).
TIPS are marketable securities indexed to inflation whose underlying value is based off of the consumer price index (CPI). So, the underlying value rises with inflation. However, once the TIPS matures, you will get either the adjusted amount or the original investment – whichever is larger, so deflation won’t hurt your investment.
Typically, TIPS have a return of between 0.5% and 2.5% (if you hold on to it for five years) semiannually. The idea behind the TIPS is that your end investment will be worth the amount of your original investment plus the interest you’ve accrued. And, your investment is protected from changes in inflation. While you can invest in TIPS directly through the government most investors opt to invest in TIPS exchange-traded funds (ETFs) or mutual funds to avoid the interest being taxed – although you will need to open a brokerage account.