If you want maximum safety right now, I suggest I-Bonds.
I-Bonds are now a screaming bargain compared to TIP, especially on a risk/reward basis.
1. The I-Bond's real yield is 0.0%. It is pathetic but it is better than TIP.
2. The fixed yield is currently 4.6% (for the first 6 months you own it based on rear view mirror inflation).
3. You can never lose so much as a penny in I-Bonds from month to month. Deflation never hurts you.
4. You never require a greater fool. This would be extremely important if interest rates spike higher. You can simply cash them out after a year (with a modest 3 month interest penalty) or after 5 years (with no penalty).
5. The money can grow tax deferred up to 30 years. That could be very important if inflation picks up. Unless TIP is owned within a retirement account, it does not offer the same taxation protection.
Win, win, win, win, win.
The downside is that you can only invest $5,000 in electronic form and $5,000 in paper form this year. That's $10,000 total. Next year they are stopping paper form so it will fall to just $5,000.
A few years ago you could buy $60,000 in total in a given year. That barn door is being shut. Too many horses are/were escaping.
This is not the best time in all of recorded history to be embracing risk. That's true even for TIP investors. Although the bulk of my nest egg sits in TIPS and I-Bonds (with intent to hold until maturity), I have no desire to place my short-term money in TIP. That money sits in an online savings account earning next to nothing instead. What goes up can come down.
There are no sure things.
If all the bonds within TIP were held until maturity there would be real purchasing power lost (which is also more than likely true of my online savings account). Whether that is better than the alternatives has yet to be seen.
Today it definitely was.
Here's what I'd really like to know. Does the typical TIP investor realize that purchasing power will be lost over the long-term? The real yield of this fund is now slightly negative. If so, TIP investors are probably okay based on what I see coming.
I have concerns that the typical TIP investor does not realize this though. If money is chasing TIP and TIPS just because momentum says they "always" go up, then there is plenty of extra risk here.
In any event, the goal in a bear market is to lose less than the next guy. Seeing as how the stock market crashed today and TIP did not, score yet another victory for TIPS investors. The game is not over though. It never ends.
Don't even get me started on the risk in the stock market though. I got out in 2004 and have no intentions of ever returning. As of 2000, it's a casino. Pure and simple.
TIPS are Treasury Inflation Protected Securities.
TIP is a medium term fund that owns TIPS. You can see its holdings by going to the iShares website and searching for it in the fixed income treasury section.
The bonds in the fund currently have an average maturity of 9.42 years. The inflation adjusted yield to maturity is currently -0.15%. The fund's expenses are 0.2%. If yields do not change over the next 10 years then you would expect to lose about 3.5% of your purchasing power. There is plenty of risk here. You could lose much more if rates rise. Mostly it depends on what interest rates do.
TIPS can be bought directly from the government through auctions. That's how I generally buy them. Here are some instructions I offered back in 2010.
In my opinion, I-Bonds are a better choice right now given the risks. You can buy up to $5,000 in Treasury Direct each year. You can also buy an additional $5,000 in paper I-Bonds through many banks. This is the last year you can buy from banks though. The system is going paperless. Starting next year the most you can buy is just $5,000.