Photo: Flickr / onecle
By now, most investors know that the U.S. Federal Reserve and other global central banks continue to engage in dangerous, currency-debasing forms of monetary stimulus – meaning it’s time to stock your portfolio with inflation-proof investments.Known as quantitative easing on this side of the pond, there are dire consequences to just one tryst with QE.
But here in the U.S., we’re on our third go-round with the QE addiction.
This means we’re headed down a dangerous path.
That’s because too much money supply triggers inflation. While it’s not definite that QE3 will bring about a return to the old Weimar Republic or the problems Zimbabwe has had to deal with recently, there is almost no getting around the fact that a financial system awash in liquidity is a financial system vulnerable to inflation.
Over the course of history, gold has been the favoured destination for investors looking to combat inflation, but there is more to the story these days. The good news is inflation can be fought myriad ways and that includes going beyond the usual suspects.
Here are a few other overlooked inflation-proof investments that’ll let you profit while prices soar.
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Time for These Inflation-Proof Investments
Investors hunting for inflation-proof investments should try agriculture-related choices.
Given that inflation has a direct, adverse impact on food prices, investors have started taking note of exchange-traded products such as the Teucrium Corn Fund (NYSE: CORN) and the PowerShares DB Agriculture Fund (NYSE: DBA).
Both are futures-based funds. CORN has been a prime beneficiary of the savage drought that walloped the Midwest this summer while DBA offers a basket approach to multiple agriculture commodities futures contracts.
There are also some compelling alternatives with which to play the farm theme.
Try the land itself. Investing in farmland has proven to be a stellar inflation hedge as values of these properties have surged over the past decade. It is also worth noting that farmland, assuming one can acquire it directly is a yield play in that it provides steady rental income.
Those looking for a single stock approach to farmland can consider Adecoagro S.A. (NYSE: AGRO), which owns almost 500,000 acres in Argentina, Brazil and Uruguay. The stock is up 14% year-to-date.
Adecoagro is backed by famed investor George Soros. Soros apparently knows what he is doing because earlier this year, Adecoagro sold some land at 14 times what it originally paid.
Besides agriculture-related investments, another inflation-proof option is timber.
Many investors still do not realise just how useful timber is as an inflation hedge, but that does not mean running down to the nearest Home Depot to load up on 2 x 4’s. Annualized returns for lumber have averaged 5% for over a century.
The iShares S&P Global Timber & Forestry Index Fund (NYSE: WOOD) and the Guggenheim Timber ETF (NYSE: CUT) are both options with different benefits depending on what you are looking for.
WOOD has the better yield and a lower expense ratio than its rival.
However, CUT has outperformed its rival this year by a wide enough margin that taking on the lower yield and higher fees was a wise move. Additionally, CUT’s price-to-earnings ratio is less than half of WOOD’s and the former’s price-to-book ratio is a third of the latter’s.
While the Fed floods the country with money, be sure to look at ag and timber as inflation-proof investments for your protection.