By Rich Meiers
This article originally appeared on Traders Reserve.
What do your gasoline tank and a shopping cart have in common? They both cost more to fill up these days. But you have probably known this for some time and it’s not news to you.
But the so called enlightened “chattering classes” that live in the high-rent districts seem to be finally catching on. All of a sudden, inflation is hot. It’s in the headlines everywhere, and the finger-pointing blame game has begun.
World governments, politicians and partisans can argue all they want over the causes. Whether it’s an expanding world economy or money supply doesn’t matter, inflation is here and could rob investors blind if they are not prepared.
Armed with the results of an International Monetary Fund (IMF) study on inflation’s impact on investment results, let me give you the self-defense techniques needed to protect your assets with exchange-traded funds (ETFs).
But first, let’s review the findings of the IMF report. Minus an inflation shock, cash is not king, stocks get wounded, but owning bonds kills; at least in the beginning anyway. On the flipside, commodities tend to keep pace with inflation.
Not all commodities are equal, though; gold outperforms inflation and actually increases your purchasing power upfront. We expect silver to provide a similar benefit as its performance closely tracks gold’s; however, silver was not mentioned in the IMF white paper. Oil and food are subject to the balancing act between inflation slowing economic growth and rising prices.
Real estate is a mixed bag. Commercial and residential properties tend to fair well, but not in the form of a Real Estate Investment Trust (REIT). Unfortunately, REITs are the most common way to access real estate through the stock market. The moral of the story is to buy the property if you have the money and collect the income.
These performance traits last about 12-18 months, and then they trade places.
Now we have a working model and time frames necessary to build a portfolio of ETFs that can effectively battle the corrosive effect of inflation.
Buy gold and silver ETFs like:
There are plenty of inverse ETFs that go up when the market goes down, but we suggest just sticking to the indexes:
- Dow Jones: ProShares Short Dow30 (NYSE: DOG)
- S&P 500: ProShares Short S&P500 (NYSE: SH)
- Nasdaq: ProShares Short QQQ (NYSE: PSQ)