Recently there has been a lot of talk about the Dollar weakening as the Federal Reserve keeps pumping money into the economy and trying to keep interest rates low but slowly meeting failure as interest rates are increasing. When the dollar starts to weaken, what do you trade or how do you protect your portfolio from inflation?
Buy Gold
One of the safest and most popular ways to trade or protect your portfolio from inflation is investing in or trading gold. The easiest way to invest or trade gold is through the SPDR Gold Trust ETF (GLD). Looking at the chart below you can see the GLD has performed well gaining 60% over the last three years when compared to the dollar at which lost 6%. If you are looking for another way to trade gold, try looking at the Market Vectors Gold Miners ETF (GDX). Gold miners significantly increase their profits when inflation picks up; as gold moves up, mining companies profit margins expand.
Treasury Inflation-Protected Securities
Treasury Inflation Protected Securities are another way to trade inflation. ETFs like iShares Treasury Inflation-Protected Securities ETF (TIP) give you a real rate of return, do not expect to make a significant amount of money here but rather reserve the value of what you have. What happens when global inflation occurs? Try looking at global ETFs like SPDR DB International Government Inflation-Protected Bond ETF (WIP) track global inflation. Looking at the chart below again you can see TIP outperformed the dollar returning 16% while the dollar lost 6%.
Buy Commodities ETFs
Commodities are a great way to trade inflation. Commodities tend to move more rapidly than the other two ways mentioned above. Commodities ETFs like PowerShares DB Commodities Index ETF (DBC) have big price swings and should be traded and watched carefully. Buying into commodities at the wrong time can devastate a portfolio but when used right they can produce huge gains. You might want to buy the individual commodities like crude oil along with a gold ETF previously mentioned.
Whatever ETF or tracks you choose to use, do your research before getting into them. Make sure you have a good case for an increase in inflation. These ETFs will not do much good to you in a deflationary period.
Tags: Economy, ETFs, InvestingStumble it!
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