We’re all waiting to hear what it’ll be: inflation or deflation. Either way, there are exchange traded funds (ETFs) to help tame either condition.
Some are calling for deflation, while other analysts are calling for inflation. Either way, you should pick a position and cater your investment to this approach. Jason Zweig for The Wall Street Journal reports that getting your call right will determine what happens next. If you design a portfolio meant to be a defense against inflation, and deflation comes to the fore, your wealth will suffer. Likewise, a deflation-proof portfolio will get killed if inflation takes off. [Why Investors Are Flocking to TIPS.]
Your decision should be based on how the direct, personal impact of the changing cost of living will affect your investments, your budget and your income. The more present threat is deflation, which may jeopardize your job security, can hurt the value of your stocks and will raise the real value of paying off your mortgage, even as it depresses how much your home is worth. [ETFs To Tame The Deflation Monster.]
If inflation looms as the larger threat, it isn’t clear that commodities will offer you much protection in the long run. There are plays listed below that can be a boon in either condition.
For deflation, investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. If you’ve got a 10-year time frame, the technology sector is also an appealing place to look, since companies often boost productivity through the use of technology. Consider ETFs such as:
There are a multitude of ways to play inflation. TIPS (Treasury Inflation-Protected Securities) are linked to the CPI, and there are a variety of ETFs available to track them. Commodities tend to rise in inflationary times, so it may be worth considering them as a hedge.
- WisdomTree Dividend Top 100 (NYSEArca: DTN)
- iShares Barclays TIPS (NYSEArca: TIP)
- SPDR Barclays Capital TIPS (NYSEArca: IPE)
- PIMCO 1-5 Year U.S. TIPS Index (NYSEArca: STPZ)
- SPDR Gold Shares (NYSEArca: GLD)
- United States Oil Fund (NYSEArca: USO)
- PowerShares DB Agriculture (NYSEArca: DBA)
Tisha Guerrero contributed to this article.
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.