The US federal government is the main issuer of inflation-protected securities, including Treasury inflation-protected securities (TIPS). These bonds guarantee a real rate of return to investors. Mitlin Financial founder and wealth advisor Lawrence Sprung discussed the importance of TIPS for investors on Decoding Retirement with Robert Powell.
“I really think it’s important that everybody have a plan, whether you’re retired or moving towards retirement,” Sprung said. It’s going to be important as we start entering a potentially lower interest rate environment to start putting that game plan together. Whether it be CDs, TIPS, and things of that nature, they have to start looking and seeing what’s going to work best for them from this point forward.”
The real rate of return is the actual return on an investment after adjusting for inflation.
It shows how much your purchasing power has increased or decreased over time. The nominal rate of return is the simple percentage increase in your investment over a period of time, without considering factors like inflation or taxes.
tips in retirement strategies
It’s the “face value” of your investment’s growth. Real estate investment trusts (REITs) offer individuals the opportunity to invest in large-scale, income-generating real estate. A REIT is a company that owns and often manages a variety of real estate assets, such as office buildings, shopping centers, apartments, hotels, resorts, self-storage facilities, warehouses, and even mortgages or loans.
“And I’ll share something that’s happened with families that we worked with. They look at some investments out there, you know, and I’m not picking on REITs. They’re good investments for the right people,” Sprung said.
“We’ve had people say to us, ‘Hey, I see this REIT and it’s paying eight, nine, ten percent, and why are we not allocating funds there?’ Now when you look at that 10 percent yield, it looks great, but then when you look at the total return of the investment, if it’s gone negative, that 10 percent may not be what your real return is.”
Retirement planning doesn’t mean locking up your money for a rainy day and forgetting about it. Planning for your future means reacting to events today. Decoding Retirement gives you the tools to navigate the years ahead, and take action now.
