Post #583 by rayvt on the Retirement Investing board

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TIPS pay a fixed percentage PLUS an inflation percentage.
... That means that every Jan 15th and every July 15th, the "interest" is calculated as half of the fixed rate (the coupon) PLUS the CPI difference over the 6 month period covered. The interest isn't paid that way though, the coupon portion is paid, and the inflation portion is used to increase the face value of the TIPS.

I am reminded of something that Warren Buffet said, about avoiding investing in things that were too complex and too hard to understand.

I would bet that 95% of non-professional people who buy TIPS have no idea how TIPS work in detail. The "interest" isn't actually interest, it's actual interest plus something that is cobbled up and called interest.
They are the "safe principal" analog of buying high yield junk bonds.

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