Why Treasury Inflation Protection Securities (TIPS)
Help keep pace with inflation
TIPS can help protect investors from the corrosive effects of inflation because, as the inflation rate changes, they adjust their face and principal value.
TIPS Basics
Understand What Makes TIPS Unique
Principal Value Keeps Pace with a Key Inflation Measure
TIPS’ face value adjusts to align with the Consumer Price Index (CPI), which measures inflation. When the CPI rises, so do TIPS’ principal value.
Interest Payments Adjust With CPI, Too
As TIPS’ principal value changes for CPI, so do their interest payments.
Government Backed
Just as other nominal Treasury securities, TIPS are backed by the US government.
See It In Action: TIPS Adjust With Inflation Over Time
At maturity, a TIPS owner receives the original principal value plus the sum of all the inflation adjustments. When inflation rises, so do the face value and interest payments. When deflation occurs, TIPS’ principal value and interest payments decline.
Source: American Century Investments. This hypothetical example assumes a five-year TIPS and a five-year nominal Treasury, each with a principal (face) value of $1,000 and a fixed coupon rate (the set interest rate assigned to a security when it's issued) of 3%. For simplicity, this chart assumes one annual interest rate payment and one yearly principal value adjustment (rather than monthly). This chart contains assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance investors can achieve similar results, and investors should not rely on this information as a specific recommendation to buy or sell securities.
Why TIPS Investments?
TIPS have historically been an effective long-term hedge against inflation, significantly outpacing headline CPI over time. They’ve also outperformed other traditional inflation hedging investments, such as commodities and diversified core bonds.
Cumulative Total Returns
(Indexed to 100)
Data from 1/31/1999 - 12/31/2024. Sources: U.S. Bureau of Labor Statistics, CPI-U, Bloomberg. In our glossary, we define Bloomberg U.S. Tips Index, Bloomberg U.S. Aggregate Bond Index and S&P GSCI Index. Past performance is no guarantee of future return.
Why American Century?
Our TIPS strategies seek to deliver enhanced return potential. They’re managed by a veteran team with decades of experience with these types of investments.
Deep Experience and Understanding About TIPS
As one of the first firms to offer a TIPS fund, we have more than a quarter century of experience managing these investments. Our tenured team has coped with a range of inflationary environments, strengthening their ability to navigate what may be ahead.
Active Management
Our investment professionals take an active, opportunistic approach to securities selection. They consider macro-economic conditions when conducting in-depth credit research on potential investments. They’re empowered to uncover relative-value opportunities while managing risks.
Diversified Approach to Portfolio Management
In addition to investing in TIPS, our team can also include corporate and securitized sector bonds in the portfolio. This flexibility supports the team’s goal to deliver enhanced returns.
Investment Choices
American Century Investments® Inflation-Adjusted Bond Fund
Seeks to protect purchasing power by investing primarily in a portfolio of inflation-linked securities.
American Century Investments® Short Duration Inflation Protection Bond Fund
Seeks to manage credit risk while helping keep pace with inflation by focusing primarily on short-duration, high-quality TIPS.
Also For Your Consideration
American Century Investments® Short Duration Strategic Income Fund
Seeks to reduce the impact of interest-rate volatility on portfolio performance while pursuing strong risk-adjusted returns and income.
American Century Investments® Short Duration Strategic Income ETF
Seeks to reduce the impact of interest-rate volatility on portfolio performance while pursuing strong risk-adjusted returns and income.
Have Questions?
Contact us to discuss our TIPS strategies.
American Century Short Duration Strategic Income ETF is an actively managed Exchange Traded Fund (ETF) that does not seek to replicate the performance of a specified index. To determine whether to buy or sell a security, the portfolio managers consider, among other things, various fund requirements and standards, along with economic conditions, alternative investments, interest rates and various credit metrics. If the portfolio manager considerations are inaccurate or misapplied, the fund's performance may suffer.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
There is no guarantee that the investment objectives will be met.
Diversification does not assure a profit nor does it protect against loss of principal.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The prospectus contains very important information about the characteristics of the underlying security and potential tax implications of owning this fund.
Investments in fixed income securities are subject to the risks associated with debt securities including credit, price and interest rate risk.
Generally, as interest rates rise, the value of the bonds held in the fund will decline. The opposite is true when interest rates decline.
In certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, inflation-protected securities with similar durations may experience greater losses than other fixed income securities. Interest payments on inflation-protected debt securities will fluctuate as the principal and/or interest is adjusted for inflation and can be unpredictable.
Duration, which is an indication of the relative sensitivity of a security's market value to changes in interest rates, is based upon the aggregate of the present value of all principal and interest payments to be received, discounted at the current market rate of interest and expressed in years. The longer the weighted average duration of the fund's portfolio, the more sensitive its market value is to interest rate fluctuations. Duration is different from maturity in that it attempts to measure the interest rate sensitivity of a security, as opposed to its expected final maturity.
The lower rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk.
Derivatives may be more sensitive to changes in market conditions and may amplify risks.
Mutual Funds: American Century Investment Services, Inc., Distributor.
Exchange Traded Funds (ETFs): Foreside Fund Services, LLC – Distributor, not affiliated with American Century Investment Services, Inc.