Tuesday, June 01, 2010
Catastrophe Runaway Inflation Portfolio
Bailouts, TARP funds, funding of government programs, money printing! When is the day of reckoning? I don't know when the day of reckoning will take place, but I know what the day of reckoning will be: higher interest rates.
There are a lot of investments you can put in your portfolio to safeguard it from runaway inflation and higher rates. You probably don't want your whole portfolio in catastrophe protection investments, but it's a good idea to have a little to give your overall portfolio some protection. Here are some suggestions.
Treasury Inflation-Protected Securities, also known as TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS bond matures, you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. You can buy TIPS from the U. S. Government at TreasuryDirect and Legacy Treasury Direct through non-competitive bidding. TreasuryDirect permits accounts for both individuals and various types of entities including trusts, estates, corporations, and partnerships.
I Bonds are a low-risk, liquid savings product. While you own them they earn a variable interest rate based on inflation, thereby providing some protection from inflation. You may purchase I Bonds via TreasuryDirect, at most local financial institutions or through payroll deduction. As a TreasuryDirect account holder, you can purchase, manage, and redeem I Bonds directly at the government's web site.
Bearish Treasury ETFs
When interests rates go up, bonds drop in value in order to compensate new buyers of bonds for higher rates. The bearish treasury ETFs drop when bonds rise in price and go up when bonds tank. So they are a great way to play higher interest rates. Here are a few worth looking at.
ProShares Short 20+ Year Treasury (TBF) seeks daily investment results that correspond to the inverse or opposite of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index by investing in derivatives that should have similar daily performance characteristics as the inverse of the daily return of the Index.
ProShares UltraShort 20+ Year Treasury (TBT) has a goal of achieving returns that correspond to twice the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond index by investing in derivatives that should have similar daily return characteristics as twice the inverse of the daily performance of the Index.
ProShares UltraShort 7-10 Year Treasury (PST) attempts to achieve daily investment results which correspond to twice the inverse of the daily performance of the Barclays Capital 7-10 Year U.S. Treasury index from derivatives that should have similar daily return characteristics as twice the inverse of the daily performance of the Index.
Gold and Silver ETFs
There are plenty of Exchange Traded Funds which are plays in gold, silver, and other precious metals. Here are a couple.
ETFS Physical Swiss Gold Shares (SGOL) seeks to match the performance of the price of gold bullion by holding physical gold bullion.
ProShares Ultra Silver (AGQ) has a goal of matching twice the performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London by investing in financial instruments with characteristics of twice the return of the index, utilizing leveraged investment techniques.
For other gold and silver ideas, you can find a list of gold and silver ETFs at WallStreetNewsNetwork.com, that you can download, sort, add to, and change.
Remember, every portfolio can use a little protection.
Author owns TBT.