Skip to comments.Hedging Inflation with ETFs
Posted on 06/03/2010 3:57:27 AM PDT by BenLurkin
Money has three central purposes. It serves as a medium of exchange, (prevents the need to go back to the barter system), it is a unit of account (a method to value transactions or measure worth), and it serves as a store of value (this is what concerns investors most). So the best way to protect ourselves from inflation is to store wealth in something that is of fixed supply that cannot be easily manipulated.
So to hedge the risk of inflation, we want to have ownership stake in assets rather than paper currency. One option is to invest in equities through a fund such as Vanguard Total Stock Market ETF (NYSEArca:VTI - News). The problem with investing in equities is that although a firm's assets and revenue should increase in value with inflation, there is the potential for these values to fall due to the negative impact on profitability due to inflation. Some estimates even show a negative relationship between stock returns and inflation. Even though stock prices and earnings are both quoted in nominal terms, the price/earnings ratio can shrink. For example, we have seen gasoline refiners suffer from their inability to pass along high oil prices. However, over the long term, firms and consumers will adjust to inflation and nominal stock prices should reflect higher inflation. A similar argument could be made for funds that invest in real estate, such as iShares Dow Jones US Real Estate (NYSEArca:IYR - News). Although the value of the land should keep up with inflation, in the short term, the economic disruption caused by real estate could have a negative impact on rental income.
(Excerpt) Read more at finance.yahoo.com ...
I have found this website to be an excellent source of information on gold, silver and the economy.
This is about using ETFs and inflation...not gold and defaltion!
You might not be aware, but there are a few gold related ETF's out there. GLD is one I own, and for the reasons stated.
With our current administration all economic theories are academic, great for discussion but of little relevance to the real world. Use your best judgement, make your best choices but in the real world and with this administration, if the government wants your money they will take it, no matter its form or location.
*cough* RTFA *cough*
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