As was true when I was suggesting the purchase of Treasury Inflation Protected Securities (TIPS) in a 12/02 essay titled "Good TIPS for Total Returns," so today people may find greater security an important factor in how they allocate their savings and investments.

If so, then another inflation protected instrument may have appeal, I Savings Bonds. These are U.S. Treasury Bonds that go up more (than the rate they would otherwise) to the degree there is inflation.

• They have a zero rate of default, since they are fully backed by the U.S. Government.

• They are subject to federal but not to state or local income taxation.

• The core interest rate, set upon purchase, does not change. Nonetheless, there are additional interest rates set subsequently, based on the Consumer Price Index for Urban Consumers (CPI-U).

• Since the core interest rate is accrued on the current value of the bond, when that has been increased by an inflation adjustment the core interest rate is computed on the new totals, including the upwardly adjusted amount if (as so far almost always occurs) the CPI-U shows there has been inflation.

• Thus, the bond value may increase over time due to the core interest rate, an inflation adjustment, plus the compounding effect of the core interest rate applied to the higher inflation adjusted amounts.

• Although their sum or combined core interest rate plus inflation adjusted interest rate varies (from a low to date of 4% to a high of 7% a year), the total returns for I Savings Bonds are far more stable than for either market based TIPS (or TIPS mutual funds) or stocks (whether individual equity securities or stock mutual funds).

• I Savings Bonds therefore have appeal for investors seeking greater retirement security or who think they may have to withdraw their funds before the bonds' full maturity dates.

• If one does withdraw early, with I Savings Bonds one may do so after one year and at cost or above, the only penalty being that if the bonds are redeemed before five years, one forfeits the first 3 months' interest.

• In contrast to TIPS, with I Savings Bonds, taxes are not due till the bonds have been redeemed. (With TIPS, taxes are based on the annual increases and payable for each tax year in question, unless the asset is in a tax-deferred account.)

• There are neither commissions nor annual fees involved for the purchase, holding, or sale of I Savings Bonds (a decided advantage over most annuity or mutual fund contracts).

• Though not everyone would qualify for this benefit, I Savings Bonds may be used for education tax exclusion (ETE), i.e. no taxes are due if the proceeds of ETE I Savings Bond redemptions are used for educational expenses.

• I Savings Bonds may be purchased either via the internet, through one's bank, or in an automatic withdrawal plan through one's employer.

• Combining allowable amounts of paper I Savings Bonds plus electronic (internet) purchased ones, a couple may invest up to $120,000 ($60,000 each) in I Savings Bonds per year, which probably would meet the needs of most households.

• A chart of the value of I Savings Bonds over time, compared with ones for TIPS or stocks, shows the amounts to be highly predictable, reliably moving upward. While it is true that the combined rate for I Savings Bonds does not represent a terrific total return, for that portion of one's portfolio that is to be really secure, no matter what happens with housing, stocks, or inflation, I Savings Bonds are hard to beat. In fact, in a volatile stock or bond market generally, they may come out ahead, particularly once the commissions or fees of regular securities or annuities are considered.

For more information on I Savings Bonds, I would recommend perusal of the U.S. Treasury's "Treasury Direct" website or The American Association of Individual Investors (AAII) discussion entitled "An Investor's Guide to Inflation-Protected Securities."

Incidentally, as often mentioned previously, AAII is in my opinion an excellent resource for investors and well worth the $29 annual subscription cost.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)