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Color of Money

Treasury Offers Options For Less-Than-Adventurous Investors

By Michelle Singletary
Thursday, May 1, 2003; Page E03

The first time I sat down with my financial planner, she asked me to describe my "risk tolerance."

For those not familiar with that term, it means: How comfortable are you with the possibility of losing any or all of your money if you choose certain investment options?

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For example, junk bonds are highly risky. If you decide to invest in them, you should have a high tolerance for risk. On the other end of the risk scale is the ultra-safe U.S. savings bond.

Where do I fall on the risk scale?

I'm the kind of person who thinks twice about putting a quarter in a gumball machine because I'm scared that when I turn the little knob, my gumball might not drop and I would lose my quarter.

When it comes to my investments, I'm happy if I can protect my principal and guard against inflation, which means making sure the money I save today can buy the same amount of goods or services in the future.

It's risk-averse, inflation-worried investors like me who may be interested in two inflation-indexed securities offered by the U.S. Treasury: Treasury Inflation-Protected Securities (TIPS) and I Bonds.

Both are designed for investors who want a guaranteed rate of return on their principal, and inflation protection.

"There are people who hate losing money twice as much as they enjoy making it," said Mathew Emmert, a writer and stock analyst for the Motley Fool, an investor-education company. "For very conservative investors, TIPS and I Bonds are a good tool."

With TIPS, introduced in 1997, the principal amount invested is adjusted for inflation using the consumer price index. Interest is paid semiannually and is calculated using the adjusted principal amount.

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