…our favorite Uncle taxes you on both the interest and the implied appreciation of the bonds each year, even though you don't receive your principal back until maturity. To beat this nasty little surprise, I suggest holding TIPS in a tax-sheltered retirement account if you can.

Retire With Vanguard

Ah, but the Treasury doesn't offer retirement accounts, does it?

True enough. However, you can buy TIPS through a no-load mutual fund like Vanguard Inflation Protected Securities Fund (VAIPX)—and Vanguard will gladly let you stick your fund shares in a retirement account.

Another convenience of dealing with Vanguard: You can invest odd amounts whenever you like, once you've satisfied the $3,000 minimum to set up an account. Vanguard collects a microscopic management fee, resulting in total operating expenses for the fund of only 20 cents a year per $100 invested.

Any disadvantages to a fund?

If you buy at auction, you're guaranteed to get back at least your original investment at maturity, even if the U.S. economy goes into a deflationary tailspin. A mutual fund, on the other hand, is constantly buying and selling securities, so there's no fixed maturity to the portfolio.

Still, I'm persuaded that the ease and convenience of the Vanguard fund make it the best vehicle for most investors. You won't get rich overnight with this fund, but it will help you preserve capital when the stock market is ailing—and will protect your purchasing power when inflation rears its head.

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