Let’s assume for a moment that all you have are these tips, but don’t move on until you have a firm grasp on the fourth one As with other investments, TIPS have advantages and drawbacks.
One advantage is that as the principal amount grows, so do the interest payments, meaning that the income generated by TIPS has the potential to rise over time.
However, one disadvantage is that you must pay federal income tax on the income plus any increase in principal, even though you won’t receive the accrued principal until the bond matures.
The principal value of Treasury Inflation-Protected Securities fluctuates with changes in market conditions.
If not held to maturity, TIPS may be worth more or less than their original value..
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