drbagel

Looking for an Inflation Linked Parking Spot

I would argue that bonds are the wrong way to hedge inflation. TIPS are indexed to CPI, which underestimates inflation for several reasons, not the least of which is the exclusion of food and energy. In general I think they are misunderstood. All they really promise is stable value. When inflation is up they underestimate it and when inflation is down they pay almost nothing. TIPS are really most useful for people heavily invested in bonds. For folks with generous stock allocations, I think an allocation to an inflation liked sector goes much further than TIPS possibly can. Inflation creates false shortages. Commodity prices go up if there is excess demand relative to supply, but also if there is too much money. The result is a false boom for commodity producers which is rapidly reflected in stock prices. XME seems to make the most sense (metals and coal). Some people may prefer commodity ETF's or ETN's but these carry tax consequences or corporate debt risk.