For conservative investors, TIPS come in handy after retirement - rarely before

Q: I'm investing for retirement and feel that stocks are too risky. Are Treasury Inflation Protected Securities mutual funds good for my IRA?
M.H.R., via e-mail

A: TIPS mutual funds can be a good investment for retirees as a hedge against inflation and a source of ongoing cash flow, says Neil McCarthy, a certified financial planner in Roswell, Ga. But for someone saving for retirement, he views them as a poor choice.

If you're 10 years from retirement, Mr. McCarthy says that you need capital growth. And that won't happen with TIPS, which currently return about 1.5 percentage points above inflation. Instead, he believes that you need to have money in diversified stock mutual funds, particularly value funds.

If TIPS eventually increase their "above-inflation margin," McCarthy says they could be a substitute for part of the bond portion of an individual's portfolio. For lump-sum purchases of $10,000 or more, a TIPS fund, such as Vanguard Inflation-Protected Securities Fund, with its low management fee, can be a good choice when the timing is right, he adds.

Q: Why do banks try to persuade customers to switch from a certificate of deposit to a money-market account that earns more interest but is not insured by the Federal Deposit Insurance Corporation? How would such an investment be dealt with if the bank fails?
J.A., via e-mail

A: It appears the bank is offering you some type of mutual fund or annuity, says Geordie Crossan, a certified financial planner in Westlake Village, Calif. His assumption is based on the fact that most money markets aren't yielding fatter financial rewards than CDs.

Banks can, and do, sell funds and annuities to customers. These options aren't FDIC insured (nor are money-market accounts), so it is crucial that you fully understand what type of investment they're pitching.

Before switching, Mr. Crossan says, understand all fees, commissions, and surrender charges that may be imposed.

As for the impact of a bank failure, money-market accounts often carry private insurance. Make sure it's available on whatever you might invest in, and check the soundness of that insurer. If the investment is a mutual fund or annuity, then any safety features lie with whoever issued it.

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