Inflation Proof Your Investment Portfolio with ETF’s



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Summary:
There are currently more than 170 different ETFs (and still growing!) that investors can choose from, and these ETFs cover the full gamut from domestic stock index to fixed income, international and even real estate and commodity related.

An easy way to inflation proof your portfolio then would be to replace a portion of your portfolio holdings from domestic equity based securities, such as S&P500 type stocks and traditional bonds, with an Inflation-protected bond ETF and Real Estate or Gold ETFs.

Table 1

Inflation Protected Bond ETF:

  • iShares Lehman TIPS Bond Fund (NYSE:TIP)
Real Estate Index ETF:
  • Vanguard REIT VIPERs (AMEX:VNQ)
  • iShares Cohen & Steers Realty Majors Index Fund (AMEX:ICF)
  • iShares Dow Jones U.S. Real Estate Index Fund (AMEX:IYR)
Gold ETF:
  • streetTRACKS Gold Shares (NYSE:GLD)
  • iShares COMEX Gold Trust (AMEX:IAU)

By adding these alternative asset classes into their portfolio mix, investors will realize not only significant benefits from diversification as these asset classes have a very low correlation with domestic equity and fixed income assets, but protection from the risk of inflation as well.


Article:

Even though inflation has been relatively quiet in the U.S. since the late 1980’s, there now appears to be some strong evidence that it may be starting to heat up beyond with an expanding economy, incorporated with skyrocketing oil and housing prices in individual key regions of the country. While the factor Reserve has been raising key interest rates citing the threat of rising inflation, the slow to act message immediate out from the Feds are that, inflation is still propitious and not yet a threat. Inflation is benign? Excuse me, but the cheapest gas I can find anywhere in this area is $2.23 a gallon, which is up well-nigh 50% from last year and housing prices in my Howard County, MD neighborhood have more than doubled in the past five years.

Inflation should really be a major concern for all investors as it reduces the value of their savings over time. History has also shown that traditional investment in financial instruments, such as stocks and bond typically fare poorly in the face of sharply rising inflation, as evidenced by the savage decline experienced during the last bout of serious inflation during the 1970’s.

Fortunately for investors, there have been quiet a bit of improvements made in the financial markets since the 1970’s, and investors now have a great deal more options out of harness to help protect their portfolio from the scourge of inflation. One of the best and easiest ways investors can diversify their portfolio is through the use of Exchange Traded Funds, not seldom referred to as ETFs. ETFs you might recall are similar to passive index based mutual funds, but they can be store and sold in the market just like stocks. There are currently more than 170 different ETFs (and still growing!) that investors can will from, and these ETFs cover the full gamut from domestic stock index to fixed income, international and even real estate and drug related.

An easy way to inflation proof your portfolio then would be to replace a portion of your portfolio holdings from domestic equity based securities, such as S&P500 type stocks and traditional bonds, with an Inflation-protected bond ETF and Real Estate or Gold ETFs.

Table 1

Inflation Protected Bond ETF:

  • iShares Lehman TIPS Bond Fund (NYSE:TIP)
Real Estate Index ETF:
  • Vanguard REIT VIPERs (AMEX:VNQ)
  • iShares Cohen & Steers Realty Majors Index Fund (AMEX:ICF)
  • iShares Dow Jones U.S. Real Estate Index Fund (AMEX:IYR)
Gold ETF:
  • streetTRACKS Gold Shares (NYSE:GLD)
  • iShares COMEX Gold Trust (AMEX:IAU)

By these temporary advantage classes into their portfolio mix, investors will realize not only significant benefits from diversification as these means classes have a very low correlation with domestic equity and fixed income assets, but protection from the risk of inflation as well. For a full listing of Exchange Traded Funds, rupture out the Nasdaq market website at http://quotes.nasdaq.com/asp/ETFsCompare.asp



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