Many investors are beginning to fear that inflation lurks around the corner. The good news is that there are a number of tools and exchange traded funds (ETFs) you have at your disposal to hedge against the threat. As the U.S. dollar has shown signs of stress, the possibility of inflation is higher, as the government also injected plenty of capital into markets earlier on.
For those investors concerned that inflation will pick up, there are ETFs to help get a handle on it.
Gary Gordon for ETF Expert says that the SPDR DB International Government Inflation Protected Bond Fund (WIP) has what it takes to appreciate in price. It’s gained a healthy 12% off the March lows and it has recently entered a technical uptrend. WIP gives non-correlated assets in your portfolio protection, which gives true diversification.
Benefits also include:
- If inflation rises, your principal will remain intact and you’ll collect a solid stream of income
- If the U.S. dollar falls, WIP is designed to rise in value
- If stocks fall, there’s no historical correlation to WIP
WIP is also a good partner with iShares Barclays TIPS Bond (TIP) which helps investors preserve their wealth under times of stress, such as inflation.
SPDR Gold Shares (GLD) gives investors access to gold, another traditional hedge against inflation. Gold has a tendency to move opposite the U.S. dollar (though not always), so it could see a comeback as Americans’ purchasing power is eroded. It’s up 5.2% year-to-date.
And then there are Treasury Inflation-Protected Securities (TIPS), which help you maintain your purchasing power as the value of the dollar falls. They offer a fixed yield, plus the inflation rate, to keep pace with changes in the consumer price index. TIPS may be attractive, and many financial advisers recommend a permanent 15% portfolio allocation to the class, but buying these bonds at periodic Treasury auctions or in the secondary market can be a pain. An ETF made up of TIPS is easier and more cost efficient. iShares Barclays TIPS Bond (TIP) is one easy way. It’s up 2.8% year-to-date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.