Plant a Few Inflation Hedges

05/14/2015 9:00 am EST

Focus: ETFs

Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Despite buying $3.7 trillion worth of bonds during quantitative easing, the Federal Reserve barely moved the needle on inflation while managing to stabilize the economy, explains Benjamin Shepherd, editor of Personal Finance.

But this won't last forever, especially when other global economies start showing signs of strength and their own central banks step back from easy money policies. And when they do, inflation will kick in, so it's always a good idea to plant a few inflation hedges into your portfolio.

SPDR DB International Government Inflation-Protected Bond (WIP)

Although Government Inflation-Protected Bond ETF has drifted down in price over the past six months—thanks to the strengthening dollar—it is a terrific hedge against a sliding dollar.

The fund holds a basket of about 100 foreign, investment-grade, inflation-protected bonds.

The fund currently yields about 2%, but if global inflation rises or the dollar weakens, the yield will rise as the value of the payouts increases. The fund is one of the best dollar hedges available.

SPDR Gold Shares (GLD)

The best known inflation hedge, gold, has hardly been popular lately. But the best time to buy anything is when it's cheap and relatively unpopular, though.

Gold appears to have found a support as marginal miners, which ramped up production near the top, have been shaken out.

Although prices could fall further if the dollar continues marching higher, every portfolio should have at least some exposure to gold, and SPDR Gold Shares is the easiest way to do that.

PowerShares DB Agriculture ETF (DBA)

Agricultural commodity prices have diverged over the past year, as the price of meats such as beef and chicken went up, while grains such as wheat and corn, known as soft commodities, went down.

Because PowerShares DB Agriculture tracks the prices of those soft commodities, it drifted down more than 20% over the trailing year, making this exchange-traded fund an attractive buy.

With the United States a major grain-exporting nation, the strong dollar also puts pressure on those prices.

They could still turn on a dime, though, thanks to geopolitics. Ukraine is a major corn-exporting country and a flare-up in tensions could easily send prices marching higher.

iShares Residential Real Estate Capped (REZ)

iShares Residential Real Estate Capped also happens to be a solid income play.
Rents and property values typically go up along with prices in general and dividends from REITs outpaced inflation in 18 of the past 20 years.

Residential REITs are a particularly good bet right now because, despite a pick-up in home construction, mortgage financing is still relatively tough to get.

As a result, apartment demand is high because new construction can't keep up with that need. Not only does that demand keep a floor under rents, but they also could go through the roof in the years to come.

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