Looking for a Sure Thing? Here is a TIPS
Any discussion of inflation hedges should include Treasury Inflation Protection Securities (TIPS). Like other federal government bonds, TIPS are issued through the U.S. Treasury and are backed by the full faith and credit of U.S. government. And like other bonds, they are issued with a fixed interest rate with maturities of 5, 10, or 20 years. The difference is, and this is key for fixed income investors such as retirees, that the yield on TIPS are linked to an inflation index which automatically adjusts the yield based on the prevailing rate of inflation.
TIPs can be purchased directly from the U.S. Treasury Department at www.TreasuryDirect.com, from a bank or a broker. You can also invest in an Exchange Traded Fund that invests in TIPS. For example, the iShares Barclays TIPS Bond Fund is one of the largest Exchange Traded Funds investing in TIPS. Keep in mind you will have to pay a small annual management fee on an Exchange Traded Fund. Currently the larger funds charge approximately .2% of the amount invested.