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Different Kinds Of Investments
These days, you can't retire without using the returns from
investments. You can't count on your social security checks to
cover your expenses when you retire. It's barely enough for
people who are receiving it now to have food, shelter...
How to Be a Forbes 400 Billionaire... By Investing in Only One Stock
"I make more money giving advice than taking it." ~ Malcolm
Forbes
The Forbes 400 Richest People in America issue just arrived in
my mailbox last week...
I pay careful attention to this issue when it comes out every
October, for two...
How to save money by spending wisely
Why is it that the older and richer people become, the more conservative they are with their money? Have you ever done or know someone who has made an investment that promised a 10% interest or profit per month? Everyone wants to make above average...
Sanity Check - Buying a Business
In the business broker community there is a review process that helps a buyer determine if a business purchase makes sense or not. This check can be done by a Fortune 500 company where everything is figured down to the penny and takes 1000 hours...
Using Sector Funds to Construct Diversified Mutual Fund Portfolios
‘Sector funds are too risky.’ ‘I doubled my money with Fidelity Select Technology in 12 months!’ ‘Avoid sector funds.’ If all of this sounds confusing, you are not alone. Sector funds are among the more misused and misunderstood investments. So,...
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Inflation Proof Your Investment Portfolio with ETF’s
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 again with an expanding economy, combined with skyrocketing oil and housing prices in certain key regions of the country. While the Federal Reserve has been raising key interest rates citing the threat of rising inflation, the cautious message coming out from the Feds are that, inflation is still benign 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 almost 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 because it reduces the value of their savings over time. History has also shown that traditional investment in financial instruments, such as stocks and bonds 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 available 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, commonly referred to as ETFs. ETFs you might recall are similar to passive index based mutual funds, but they can be bought and sold in the market just like stocks. There are currently more than 170 different ETFs (and still growing!) that investors can choose from, and these ETFs
Associated Websites
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. For a full listing of Exchange Traded Funds, check out the Nasdaq market website at http://quotes.nasdaq.com/asp/ETFsCompare.asp.
About the Author
Mr. John J. Lah, MBA, CFA is a Principal at Waverly Financial Group (http://www.my-finance.net), a no commissions, no product sales, Fee-Only financial advisory firm located in Ellicott City, MD, specializing in portfolio management with Exchange Traded Funds. Mr. Lah received his MBA from James Madison University in Harrisonburg, VA and is a CFA charter holder.
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