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What Inflation-Hedging Investments Do You Recommend?

Question: I’d like to avoid bonds because of their current low yields and interest-rate risk. What are some good, inflation-hedging alternatives to consider?

– Toby Lawson, New York City

Answer: Most financial planners would advise against forgoing bonds completely. But you’re right on one front: If you’re looking for inflation protection, bonds aren’t it, says Paul Baumbach, a financial planner and founder of Mallard Advisors in Newark, Del., with more than $100 million under management. Experts say that even TIPS (Treasury inflation-protected securities), government bonds that adjust the principal to keep up with inflation, aren’t really worth it at today’s high prices. (You can blame overwhelming investor demand.) Historically, in high-inflation environments, stocks have performed the best, says Baumbach; so consider filling that gap with fixed-income instruments that are a bit less “bond-like,” such as high-yield debt—or convertibles, which are bonds that can be converted into common stock.


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    • I didn t win your draw for “When Money Dies”, but bought it ayanwy and found it a very interesting read. It was however a little disconcerting to realise that the draw for the book was part of the pre-marketing of your inflation-linked corporate bond fund. It struck me as quite a jump from today s market environment to a defeated Germany in 1923 and as such had the unpleasant whiff of scare mongering-as I don t think you are suggesting that we are on the precipice of hyperinflation. But if you do think so, I have a couple of questions. Do you really think that an inflation linked rate of interest will protect investors if the currency involved becomes worthless? Do you think you can actually cherry-pick the corporates that will survive a hyperinflation while avoiding the rest. It seems to me that Mr Schacht s solution to hyperinflation was to wipe out all debts and start with a clean slate ..

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