The government has created record in spending that include $108 trillion in unfunded liabilities for social security, Medicare plus new universal healthcare benefits. This has put the country on risk. With the rates of interest close to zero, the Federal Reserve are not able to take one conventional action – reducing short-term rates – to re-establish the weakened economy.

In this hard economic slump or double-dip recession, politicians – with the reluctant assistance of the Fed – might decide to spend even more massively to attempt to jump-start the financial system. The end result can be stagflation: slow growth along with higher inflation.

Inflation is the curse to the debt holders. But it is a blessing to the debtors – and Uncle Sam is the biggest of them – as they can pay the fixed obligations with increasingly worthless currency.

Are you scared of growing inflation? And want to make sure better profits over inflation from your investments at least risk? Therefore Treasury Inflation Protected Securities (TIPS) could be the most excellent investment choice for everyone.

Treasury Inflation Protected Securities (TIPS) are often known as Treasury Inflation Index Securities and Real Return Bonds (RRB). TIPS are ‘safest of the safe’. There is small amount of downside risk on investing. TIPS are long-term fixed income investments protected against fluctuations in the rate of inflation.

But why make use of TIPS as your hedge against inflation, rather than a traditional hedge, such as precious metals? You can utilize both as your hedge against inflation. However always remember, precious metals like gold and silver are less than ideal hedges.

Gold and silver have accomplished very well over the last ten years. Gold has more than quadrupled. Silver has ended even better. But twenty years before that were a total disasters.

But no matter whether inflation is low or high, TIPS will protect you from the risk on your investment. How?

Here are the advantages of buying Inflation-Protected Treasuries:

Regular Interest Payments: Just like a regular Treasury bond, TIPS reimburse interest regularly once in six months. However unlike traditional bonds, your principal grows every year by the amount of inflation, as calculated by the consumer price index (CPI). That is when inflation rate is up; value of TIPS is also increased automatically. In other words, inflation protection is available on both capital and investment. The interest paid once in every six months as well escalate by the amount of inflation.

Tax Advantages: The interest you receive from TIPS investments are freed from state and local income taxes (but not federal).

TIPS are also less unstable when compared to the traditional bonds. The yield on these TIPS funds is presently about 2.5% (plus whatever inflation is going ahead).

Another important reason to consider adding TIPS to your portfolio is the great portfolio diversification benefits they bring. This reduces the overall risk and / or volatility of your portfolio over time. TIPS bond yields are little or negative correlation with the performance of many other traditional investments such as stocks and normal bonds.

Rising inflation probability are helpful for TIPS profits, however in the short period are negative for the returns of stocks and bonds and vice versa.

TIPS can be bought in three ways:

1. Directly: It is possible to buy TIPS directly from the U.S. Treasury or via a bank, broker, or dealer. You can find out more about buying TIPS directly at http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_buy.htm

2. Through the Vanguard Inflation-Protected Securities Fund (VIPSX).

3. Through its ETF equivalent – the iShares Barclays TIPS Bond Fund (NYSE: TIP)

Purchasing TIPS through mutual funds offer more flexibility.

There are several advantages of buying TIPS

1. TIPS are very advantageous for long-term investments. 2. TIPS are excellent ways to diversity your portfolio that minimizes whole portfolio risk. 3. TIPS are government guaranteed. 4. TIPS are less volatile than traditional bonds. 5. TIPS are beneficial when inflation rates are projected to go up plus when financial system slows down. 6. Investment on TIPS needs less active investment management thus help both newbies and experienced investors.

Some investors object that TIPS hasn’t done anything interesting in recent times. This is not true. We’ve been in the control of disinflationary forces, not inflationary ones. That will not alter next week or next month.

But as the deficit keeps growing that makes people sad, pressure will increase on the government to do “something”. That “something” can be a decision to inflate our way out of this mess, rather than risk the kind of deflationary spiral that Japan has suffered over the past 2 decades.

Understand that: The Fed has by now taken interest rates almost to zero. Congress has by now tried a huge fiscal stimulus The Federal Reserve has already created trillions out of thin air to mop up worthless securities.

There are chances of increase in inflation if the economy stumbles once more that forces to the government to take further action, it could be even further reckless.

A few libertarians as well as laissez-faire capitalists will refuse to purchase TIPS. However other inflation hedges sometimes do not work. Hence there is no small risk taking an alternative approach.

In total, TIPS is the only investment that guarantees a gain that exceeds inflation in the years in the future. And it is in fact an key element of your portfolio.

Hedging against inflation can be risky sometimes. Download FREE Weekly Wealth Letter to learn strategies about Hedging against Inflation to reduce risk on your investment. Weekly Wealth Letter is loaded with powerful resources for wealth building. Download your free copy now: http://www.weeklywealthletter.com/wwl/index.jsp?ref=uaw&arid=1