How to Insulate Your Portfolio from Inflation

Annual limits on the purchase of Series I is more than $10,000 if you have a tax refund or some other entity like a Trust or business. Additional inflation protection can be obtained through the purchase of Treasury Inflation Protection Securities (TIPS).

Question: I am worried that my retirement plan will not keep up with inflation and would like to increase my holdings of Series I savings bonds.  However, there is a $10,000 annual limit on purchase of these assets. What can I do?

Answer:   The purchase of Series I savings bonds is the single best way to protect yourself and your household against inflation. Series I Bonds are literally the only thing working in most portfolios today, a situation that will unfortunately persist unless inflation drastically recedes.

The Treasury limits direct purchases of Series I Bonds from Treasury Direct to $10,000.  However, taxpayers with a tax refund can purchase an additional $5,000 in Series I Bonds. Go here for a discussion of how to do this.   You can also purchase Series I bonds through a Trust or a business.   The first step is to go to Treasury Direct and set up an entity account.

The annual limits prevent most households from quickly increasing their holdings of Series I bonds in response to a sudden shift in inflationary expectations.

Additional protection against inflation can be obtained by purchasing Treasury Inflation Protection Securities (TIPs). There is $10 million dollar limit on each TIPS security for each auction.  I am not worried about every being constrained by this limit.

The price of TIPS varies with interest rates and inflationary expectations, and you can lose money on TIPS. But price risk can be managed by staggering the purchase dates and maturity dates of the TIPS bonds and holding the bonds until maturity.

Series I Bonds are sold at par and never fall in value.    The semi-annual rate can go up and down with inflation, however, the bonds will not fall in value with inflation.  Go here for Series I FAQs from Treasury Direct.  Go here for a comparison of Series Bonds and TIPS.Authors Note:  The paper Financial Decisions for a Secure and Happy Life  is a collection of eight essays.  One of the essays provides a lot of information on Series I bonds and Tips.  The author has also written extensively on health care with his most recent paper outlining potential 2024 care reform proposals

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