How Do You Play the Inflation Game?

Check this article out for a case of why inflation will be a severe problem in the next few years. If inflation is going to be a problem in the next few years, what should one invest in?

1) Broadly speaking, stocks and real estate beat inflation over the long run. That said, adding undue risk by paying too much for stocks or real estate is not smart either and current market valuations are on the high end of the scale historically speaking. However, value stock picks can be found even in today's market (real estate is a different story altogether - I challenge anyone to find me a 'value' real estate pick - P/E <10). Passive investors could consider investing in a Value Exchange Traded Fund like the iShares XCV, IWW, or EFV depending on the market you want to invest in. Value mutual funds like ones managed by Cundill, Brandes, Brandywine, Sionna, or Chou can be a good fit as well.

2) More specifically, one could hedge exposure to increasing prices on the necessities of life - food, water, shelter and health care for example - by investing in companies that profit during times of rising prices or in the commodities themselves. This can be done quite easily by using Exchange Traded Funds that focus on these areas. Some examples of these ETFs are:
Food - MOO - Agribusiness
Food - DBA - Agricultural Commodities
Water - PIO and PHO - Water technology and resources
Food and other- PSL - Consumer Staples
Food - PBJ - Food and Beverage
Medicine - PJP - Pharmaceuticals
Shelter - XRE - Canadian Real Estate Investment Trusts

3) Real Return Bonds offer a guaranteed principal repayment and a yield that adjusts with the Consumer Price Index which should match inflation. If you believe the bond market does not reflect the risk of inflation going forward than RRBs can be a good way to put your money where your mind is. There are also a few RRB mutual funds available from TD, Altamira, Dynamic and Mackenzie. There is also a RRB index fund available from iShares - XRB.

4) Historically speaking, gold and silver have been traditional hedges against inflation as well. One can purchase physical gold and silver via several coin and bullion dealers. One can also invest in gold and silver via ETFs GLD and SLV or in mining companies that profit when gold and silver prices rise. Many precious metals mutual funds and ETFs are also available.