A regular bond pays a fixed amount, which inflation can quietly erode.

A TIPS is built to fix that. Its value rises with inflation.

It protects your buying power, but with a catch most owners do not expect.

Inflation stayed above the Fed's 2% goal through 2025.

That kept interest in bonds that guard against rising prices.

TIPS adjust their principal by the consumer price index.

As prices rose, the value of TIPS rose with them.

But their market price still swung with interest rates, confusing many holders.

A TIPS starts with a set principal, say $1,000.

Each month, that principal is adjusted up with the consumer price index.

Interest is paid on the adjusted, higher principal, so the payments grow too.

At maturity, you get back the inflation-adjusted principal.

So your buying power is protected against rising prices over the life of the bond.

The catch: before maturity, the price still moves with real interest rates.

The first stress point is real rates. If they rise, TIPS prices fall, even as inflation adds to principal.

That is why TIPS can lose money in a year of rising rates, as they did in 2022.

The second is the measure. TIPS track official inflation, which may not match your own costs.

The third is tax. In a taxable account, the yearly principal gain is taxed before you receive it.

Held to maturity, a TIPS does its job: it returns your money adjusted for inflation.

For long-term savers worried about prices, that protection is real and deserves credit.

What can break is the expectation of stability, since the price still swings before maturity.

You can watch the gauge. The gap between TIPS and regular Treasury yields shows expected inflation.

That gap, the breakeven rate, is a live read on what markets expect prices to do.

A TIPS protects your buying power over its full life, but its price still swings until then.

It guards against inflation, not against rising real rates, a difference many owners miss.

The next test is the path of inflation and real rates. Watch the breakeven inflation rate.