• Look at traditional inflation fighters. Gold and real estate have had big run-ups. So commodities like food, timber and nonprecious metals might be safer, if bought within inexpensive exchange-traded funds like iShares GSCI Commodity Indexed Trust ETF (GSG) or iPath Dow Jones-AIG Commodity Index Total Return ETN (DJP). Morningstar likes BlackRock Global Resources Fund (SSGRX).
• Don’t go overboard. It’s good to keep about 5 percent of your investment portfolio reserved for anti-inflation investments, says Bohemia, N.Y., financial adviser Ron Rogé. He recommends the T. Rowe Price New Era Fund, which is heavy on energy companies now. But don’t plow all of your funds into commodity investments. Huge bets tend to backfire, so stay diversified.
• Buy stocks. They usually do well in periods of moderate inflation (5 percent or so), especially if you choose the right ones. Go for consumer-goods companies that have room to raise prices, and solid blue chips with strong dividends, says Rogé.
• Consider bonds. Treasury inflation-protected securities and I Bonds both guarantee that yields will rise to match growth in the consumer price index. But their yields are very low now—under 2 percent in real terms. Look for better yields in inflation-protected bonds issued by corporations (find some at incapital.com) and other countries via a new exchange-traded fund, SPDR DB International Government Inflation-Protected Bond ETF (WIP). Morningstar suggests Vanguard Inflation-Protected Securities (VIPSX) and Harbor Real Return Fund (HARRX). Because of the way they’re taxed, these bonds are best tucked into a tax-deferred retirement account.
