Tips are still good, because they protect bond investors from what they fear most: inflation. Investors can play TIPS through the Vanguard Inflation-Protected Securities fund (VIPSX), or an exchange-traded fund, the iShares Barclays US Treasury Inflation Protected Securities fund (TIP).

great hedge for inflation

My next pick is Treasury Inflation-Protected Securities, or TIPS. Here's an example of deleveraging at work. Theoretically TIPS should have performed like Treasury bonds. Instead they went down in price while Treasuries have been going up. TIPS now sport real yields of 2.5% in an economy that is growing nowhere close to that. And that's before you tack on the inflation kicker. [The principal of a TIPS increases with inflation and decreases with deflation, as defined by the consumer-price index. TIPS also pay interest twice a year, at a fixed rate applied to the adjusted principal.] When an economy deleverages, almost every asset goes down. As Abby discussed this morning, hedge funds, levered institutions, sold what they could when they had to raise funds. TIPS were the most liquid thing in many levered portfolios, and the hedge funds have been spitting them out billions of dollars at a time. Yet, the potential for inflation five to 10 years from now is high. You can buy TIPS via the iShares Barclays TIPS Bond ETF [exchange-traded fund].

How to Beat Inflation With ETFs: Exchange-traded funds are not just a hot financial product. Russ Koesterich, managing director at Barclays Global Investors, explains how to whip inflation using ETFs.

Click here to watch the video.

And if you want a more direct play on inflation Karen Finerman has two suggestions. “Get long iShares Lehman TIPS Bond fund (TIP) or short the 30-year bond,” she says.

Hedge

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Karen Finerman likes Wal-Mart (WMT) and iShares Lehman TIPS Bond (TIP).

Treasury Inflation Protection Securities holding.

Minimal increase @ 0.6%