This morning I was browsing through yahoo finance and came across an article Inflation-Beating Investments for Retirement(full story here) by Leslie.

I couldn't stop myself from critically analyzing the choices mentioned in the article and giving some common-sense advice.

TIPS (Treasury Inflation Protected Securities)

It's the best choice Leslie mentioned in her article.

It's backed by the Treasury so it's a safe heaven. I would suggest you buy them through a very low cost mutual fund like vanguard Inflation Protected Securities (VIPSX). Why go with mutual fund when you can buy them directly from treasury? Here is your answer

• You can invest as little as $50 per month without paying any fee.
• You can sell your fund and get your money back anytime you want (barring some restriction. Read the prospectus for funds for the restrictions or call them and ask directly.).
• You will never have to worry about the timing of when to sell and buy. The fund manager will do that for you.
• You pay very little cost (~ 0.2%)

I Bonds

Can you wait for five years before you want your money back?

Good choice but less flexible and you will have to hold them for at least 5 years to take the full advantage. You can read more about I Saving Bonds here.

Alternatively you can go with Vanguards Short Term Treasury Fund (VFISX). The fund is not the same as I Bonds but they are backed by the Treasury and provide modest and stable return.

Dividend rich stocks

Do you still have an appetite for the risks of stock market? Great choice but considering the volatility of the market it's only for those who have the appetite for the stock market risk. Never buy them in one go. Always make use of a mutual fund to invest in a diversified portfolio of stocks that provide good dividends. Vanguard High Dividend Yield Index Fund (VHDYX) is a good choice with only 0.4% expense ratio. Mind you the fund is down -32.5% YTD (as of 11/28/2008). It's not a good choice for retiree who would need constant stream of money with the minimum risk.

ETF

I don't quite agree with this option. Not a good choice for retirees who need a stable stream of income with the lowest risk. Also the problem with ETF is that you have to invest in a big chunk to avoid fees and expenses eroding your gain. Investing in a big chunk is never advised and that too when you are on the verge of retirement of already retired.

Mutual Fund

I don't know why Leslie mentioned this as she already covered this in the Treasury Inflation Protected Securities section. Again you must be very cautious of stock funds in your retirement and focus in fixed income securities. Sleep peacefully not with the worry that when you wake up in the morning you would see your retirement income evaporated in the stock market.

Finally I would conclude this article with one suggestion to retirees and would be retirees - please don't fall for the bigger gain promised by your broker and financial advisers (they are just selling their institution's fund to you) and stay clear of stock heavy portfolio in your retirement if you really want a steady stream of fixed income.

It's time for mental peace and enjoying what you want to do so be better be equipped with the financial knowledge that you will never get anywhere.