Inflation Protected

DEFINITION of 'Inflation Protected'

The types of investments that provide protection against inflation or the rise in prices of goods and services. Most hard assets are typically protected against inflation. This is because commodities tend to appreciate during times of high inflation.

BREAKING DOWN 'Inflation Protected'

Certain funds are also created to protect investors from the negative effects of inflation. These funds focus on investing in securities that bring a real return, which is the return on an investment, minus the reduction in its value as a result of inflation. These funds also invest in bonds backed by the federal government. The funds' principal is adjusted quarterly based on the current inflation rate.


The Treasury Inflation Protected Securities (TIPS) is an example of this. The principal portion of this security increases with inflation and decreases with deflation in accordance with the Consumer Price Index (CPI). At maturity, the adjusted or original principal is paid; whichever amount is higher.

RELATED TERMS
  1. Inflation Trade

    A method of investing that seeks to profit from an overall increase ...
  2. Treasury Inflation Protected Securities ...

    A treasury security that is indexed to inflation in order to ...
  3. Insurance Inflation Protection

    Insurance inflation protection is designed to allow policyholders ...
  4. Inflation Targeting

    A central banking policy that revolves around meeting preset, ...
  5. TIPS Spread

    TIPS spread compares the yield of the Treasury Inflation Protection ...
  6. Base Effect

    The consequence of abnormally high or low levels of inflation ...
Related Articles
  1. Managing Wealth

    Inflation's Impact On Stock Returns

    When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...
  2. Markets

    How Inflation Affects Your Cash Savings

    Prices tend to rise over time and this inflation can cut into the value of your savings. Here are some ways you can manage the situation.
  3. Investing

    Protect Your Portfolio Against Inflation And Deflation

    Inflation and deflation are opposite sides of the same coin. When both are threatening, here's what to do to keep your portfolio safe.
  4. Markets

    Should You Worry About the U.S Inflation rate?

    Understand how inflation is measured, how U.S. inflation compares to other countries, and if investors should be concerned with rising inflation.
  5. Investing

    Are TIPS a Good Buy Right Now?

    TIPS are trading at a big discount making this a good time to get into these instruments for those who believe that inflation is on the horizon.
  6. Markets

    Macroeconomics: Inflation

    By Stephen Simpson Inflation is a key concept in macroeconomics, and a major concern for government policymakers, companies, workers and investors. Inflation refers to a broad increase in prices ...
  7. Retirement

    Inflation And Your Retirement

    When you're setting financial goals and saving for retirement, don't forget to factor in inflation. Here's how to fight back and protect your future.
  8. Markets

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  9. Retirement

    Retirement Planning: Why Real Rates of Return Matter Most

    Here's how to plot your real rate of return, understand your "personal inflation rate" and safeguard your retirement funds against inflation.
  10. Investing

    Inflation Protected Securities: How They Work

    Learn how the U.S. Treasury inflation-protected securities (TIPS) work, which considerations investors should keep in mind and for whom TIPS are most suitable.
RELATED FAQS
  1. What is inflation and how should it affect my investing?

    Inflation, an economic concept, is an economy-wide sustained trend of increasing prices from one year to the next. The rate ... Read Answer >>
  2. How does inflation affect fixed-income investments?

    Learn about the ways inflation can harm fixed-income investments. Find out how to monitor the impact of inflation using common ... Read Answer >>
  3. How does the amount of the principal fluctuate depending on inflation?

    Read about the impact of inflation on your principal balances, and learn why inflation harms lenders and bondholders at the ... Read Answer >>
  4. What are the benefits of government bonds?

    Its true for the fact that it is one of the safest instruments to invest, but do you really get the rate of return over a ... Read Answer >>
  5. Why are P/E ratios generally higher during times of low inflation?

    Inflation affects equity prices in several ways. Most importantly, investors are willing to pay less for a certain level ... Read Answer >>
  6. How can inflation be good for the economy?

    Find out why some economists and public policy makers believe that inflation is a good, or even necessary, phenomenon to ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center