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5 Reasons to Invest In Inflation Adjusted Bonds
- Fixed income investing can mean inflation adjustable securities because they require a small initial investment
- Investment grade bonds have lower default rates so there is less risk involved
- An inflation protected bond can help you hedge against both inflation and deflation
Buying an inflation protected bond can be a very smart investing decision, and these securities offer a number of advantages over other investment types. Inflation may not seem like a big problem in the current economic environment, but these investment grade bonds can help you hedge against both inflation and deflation, and they are an important part of a well diversified portfolio. These investments are great for fixed income investing, long term investing, and almost every other investment strategy and situation.
1. These Bonds Offer Portfolio Diversity
Inflation adjusted bonds are a great way to diversify your investment portfolio. Diversification is important to prevent devastating losses to your portfolio and investment capital, and your portfolio should include a wide variety of assets and classes to protect your capital. No matter what your investing needs are, it is important that your portfolio is diversified and contains around ten to fifteen percent of investments in investment grade bonds which protect against inflation and deflation. This will help you keep your portfolio strong. Even if some areas of the market lose, others are normally doing great. This allows for small gains usually even if some investments are doing poorly.
2. These Bonds Are An Inflation Hedge
An inflation protected bond is a great way to hedge against any future inflation, and the effects it may have on your investments. Buying a inflation protected bond means ensuring that your investment is secure regardless of whether inflation rises or falls. Because of this, these bonds are great for long term investment strategies and for those who do not want to risk their investment capital in even low risk stocks and other investments. The principal amount of these bonds will adjust for inflation, unless tis amount falls below the original principal of the bond, in which case this will be paid. Interest on the adjusted principal of the bond is normally paid twice a year.
3. These Bonds Are A Deflation Hedge
Investment grade bonds which are protected against inflation also help you hedge your risks against deflation as well. These bonds follow the rate of inflation, but if deflation happens and the bond principal value falls below the original bond amount, you will receive the original amount at maturity instead of the lower value due to deflation. With the weak economy and the global crisis in banking and many other industries, deflation may be a very real possibility in the near future. With many investments deflation means a big loss in value, but this is not true with inflation protected securities.
4. These Bonds Offer A Very Low Risk Of Default Normally
Investment grade bonds offer the lowest risks of default, and if you choose to invest in inflation adjusted securities offered by the United States Treasury or other government municipalities you can be assured of almost no risk of default. It is very unlikely that the US Treasury will go bankrupt or default on bond payments, and this is also true of many state and city governments as well. These bonds offer a very safe and conservative way to protect your investment capital while still putting it to work for you. The interest rate you receive may not be large, but neither are your risks.
5. A Small Initial Investment Is Needed For These Bonds
A great aspect of an inflation protected bond is the small amount of capital needed for your initial investment. These bonds are easy and convenient even if you are looking at fixed income investing methods because of limited funds. These bonds can be purchased for as little as twenty five dollars, making it easy to invest small amounts periodically. This will help you build up your investment nest egg painlessly, so that you will never even notice the amounts put away until you notice your investment portfolio balance.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
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