What Investment Products Help Protect Against Market Bumps?

BY Paul Solman  December 15, 2011 at 5:32 PM EST

Paul Solman answers questions from NewsHour viewers and web users on business and economic news here on his Making Sen$e page. Here’s Thursday’s query:

Name: Don Kruger

Question: I lost half of my 401k savings in the last big bump in the “market.” Now I have an IRA that I will be have to draw on in three years. Is there no way to save my recovered total from another whack?

Paul Solman: I sent this question to Boston University finance professor Zvi Bodie. His response:

Yes, there is a way — inflation-protected bonds and annuities — “TIPS.” These are investment products that protect you against the risks of market crashes, inflation, and living longer than your money lasts. To learn all about them I recommend starting here: zvibodie.com. To learn about inflation-protected lifetime income options, here is the place to start.

As I’ve written many times before on these pages, TIPS are my own preferred way to invest and preserve my retirement savings, and have been ever since Professor Bodie made me aware of them in the late 1990s. I confess that continuing to hold them at the moment is a nerve-wracking experience, as they pay so little interest above the inflation rate, and short-term TIPS bought on the secondary market actually pay LESS. But as I wrote to an emailer not long ago, I just can’t figure out a safer asset class. If I do, I’ll let you know.

This entry is cross-posted on the Rundown- NewsHour’s blog of news and insight. Follow Paul on Twitter.