Investments For Inflation Protection

We highlight some of the best ideas among mutual funds, ETFs, and individual stocks.

Are higher prices on the way? Or are they here already?

The answer is yes and yes, according to Morningstar.com users, who recently shared their own inflationary woes. And the statisticians are pointing to higher inflation, too, with the Labor Department recently reporting that January marked the second straight month in which the Consumer Price Index had ticked up.

Higher food and gas prices can be a problem for people from a quality-of-life standpoint, and they also spell trouble for investors. By the time you start tapping your portfolio to meet your income needs, those dollars you've managed to save could be worth a lot more than they are right now.

That's why it's so important to ensure that your portfolio is adequately protected against inflation. Some inflation-fighting vehicles have explicit protection against rising prices, such as Treasury Inflation-Protected Securities. Others, such as stocks, protect against inflation indirectly.

Here's an overview of the key vehicles with inflation-fighting attributes as well as some of Morningstar's top picks within those groups.

Inflation-Protected BondsThe ThesisFor holders of nominal (that is, not inflation-protected) bonds, inflation is a natural enemy, right up there with rising interest rates. If an investment is delivering a fixed payout, inflation will reduce the value of that payout accordingly. That's where inflation-protected bonds come into play. There are two main varieties: I-Bonds and inflation-protected bonds. The former are bonds for individual investors issued by the Treasury Department; their yields adjust upward to reflect changes in the Consumer Price Index. (This article provides more color on I-Bonds.) Inflation-protected bonds, such as TIPS, are similar, but the inflation adjustment comes at the principal level, not in the bond's yield.

Best BetsThere are no funds composed of I-Bonds, but there are a number of offerings that focus on inflation-protected bonds. For plain-vanilla TIPS exposure, it's tough to beat the low-cost  Vanguard Inflation-Protected Securities ; for ETF enthusiasts,  iShares Barclays TIPS Bond displayPTip('TIP', 'TIP','YTD', '', '', '', '', '', '','msg','P'); is another low-cost, no-nonsense choice. The PIMCO-managed  Harbor Real Return displayPTip('HARRX', 'HARRX','YTD', '', '', '', '', '', '','msg','P');, meanwhile, has successfully employed a broader toolkit that encompasses non-U.S. inflation-protected bonds and the use of forward contracts to obtain TIPS exposure. While  SPDR DB International Government Inflation-Protected Bond displayPTip('WIP', 'WIP','YTD', '', '', '', '', '', '','msg','P'); isn't an official  ETF Analyst Pick, it provides both inflation protection and diversification away from the U.S. dollar. Bear in mind, however, that when articles about inflation are splashed across every newspaper and financial website, TIPS can get expensive, and that could be the case right now, too. (For a little color on this issue, check out my colleague Eric Jacobson's article.) Given that TIPS would also be susceptible in a rising-rate environment, anyone building a position in them right now should tiptoe during a period of months rather than adding to their holdings right now.

Bank LoansThe ThesisUnlike inflation-protected bonds, bank loans don't include an explicit mechanism to ward against inflation. But they stand to be fairly hardy when inflation is on the move. That's because bank-loan payouts fluctuate in line with the London Interbank Offered Rate--the rate that banks charge one another to borrow money. When the LIBOR heads up, which is often the case during inflationary environments, so do bank-loan coupon payments.

Best BetsBank-loan funds might seem to have everything you need for the current economic environment: imperviousness to rising interest rates plus some inflation-fighting characteristics. But investors should tread with caution in this varied category. Due to credit sensitivity and forced bank-loan selling from institutional investors, the average bank-loan fund lost a shocking 29% in 2008. Morningstar's favorite fund here is one of the group's slow and steady options,  Fidelity Floating Rate High Income displayPTip('FFRHX', 'FFRHX','YTD', '', '', '', '', '', '','msg','P');, where manager Christine McConnell assiduously avoids the market's riskiest loans. As with TIPS, think about dribbling money slowly into this category during a period of a few months rather than moving it in all at once. 

Commodities/Metals FundsThe Thesis The premise behind owning commodities investments for inflation protection is straightforward: If the prices of goods are going up, an investment that captures price changes in food, energy, and basic-materials costs will thrive at the same time.

Best BetsAlthough the case for commodities for inflation protection is straightforward, the implementation isn't. Owning the stocks of commodities companies, as with an offering like  T. Rowe Price New Era displayPTip('PRNEX', 'PRNEX','YTD', '', '', '', '', '', '','msg','P');, provides indirect exposure to the prices of stuff. And while commodities futures-based funds aim to provide broad, and direct, exposure to the prices of goods, in practice they haven't been perfect trackers of commodity prices as a result of a situation called contango. (Read this article for a discussion of the pros and cons of these investments.) The PIMCO-managed  Harbor Commodity Real Return displayPTip('HACMX', 'HACMX','YTD', '', '', '', '', '', '','msg','P'); is Morningstar's sole  open-end Fund Analyst Pick within the commodities category. Our exchange-traded fund team, meanwhile, has  a few commodities picks, including  iPath DJ-UBS Commodity Index displayPTip('DJP', 'DJP','YTD', '', '', '', '', '', '','msg','P');. At the risk of sounding like a broken record, this is another good category for dollar-cost-averaging.

StocksThe ThesisStocks are another indirect way to gird your portfolio against the threat of inflation. Their returns are variable, in contrast with fixed-rate investments, giving them the potential for higher returns than bonds. That means that inflation could take a smaller bite, in percentage terms, out of your future purchasing power.

Best BetsNot all stocks will thrive in an inflationary environment, and some companies may even see their profitability flag. To help identify companies with a strong history of profitability through a variety of economic environments, screening for firms with high returns on equity is a good starting point. Morningstar's preset  Wealth Creators screen can help you identify such firms, and layering on an additional screen for wide moats will further winnow down the universe to companies with long-term competitive advantages. Fund investors have a few top options, including  Vanguard Dividend Growth displayPTip('VDIGX', 'VDIGX','YTD', '', '', '', '', '', '','msg','P'); and  T. Rowe Price Dividend Growth displayPTip('PRDGX', 'PRDGX','YTD', '', '', '', '', '', '','msg','P'); (traditional actively managed funds) and the index fund Vanguard Dividend Appreciation (available as a conventional  mutual fund displayPTip('VDAIX', 'VDAIX','YTD', '', '', '', '', '', '','msg','P'); and  ETF displayPTip('VIG', 'VIG','YTD', '', '', '', '', '', '','msg','P');). 

A version of this article appeared on Dec. 9, 2010.

See More Articles by Christine Benz

New! 30-Minute Money Solutions Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.   Order Your Copy Today--$16.95        Return to Discuss

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Securities mentioned in this article Ticker Price($) Change(%) Morningstar Rating Morningstar Analyst Report With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies. Video Reports Even in a Slow Economy,... More Videos... Most Popular Related News Also in Investing Specialists Berkshire Hathaway Whittles Portfolio Down Further Sponsored Links Buy a Link Now Sponsor Center Please Wait... PERSONALFINANCE USA_PRDGX,USA_PRNEX,USA_VDIGX,USA_VIPSX,USA_FFRHX,USA_TIP,USA_VIG,USA_DJP,USA_HARRX,USA_VDAIX,USA_WIP,USA_HACMX FO_USA_PRDGX FO_USA_PRNEX FO_USA_VDIGX FO_USA_VIPSX FO_USA_FFRHX FE_USA_TIP FE_USA_VIG FE_USA_DJP FO_USA_HARRX FO_USA_VDAIX FE_USA_WIP FO_USA_HACMX &primaryKeyword=PERSONALFINANCE 2 {CommentWebService} OAS_AD('Bottom'); Content Partners Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Stocks by: Title Ticker Popularity Interest Funds by: Title Symbol Popularity Interest Articles by: Title Date Popularity Interest Stock Groups by: Popularity Interest Favorites Title Fund Groups by: Popularity Interest Favorites Title Article Groups by: Popularity Interest Favorites Title Premium Stocks by: Title Ticker Popularity Interest Premium Funds by: Title Symbol Popularity Interest Premium Articles by: Title Date Popularity Interest Independent. Insightful. Trusted. Morningstar provides stock market analysis; equity, mutual fund, and ETF research, ratings, and picks; portfolio tools; and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2010 Morningstar, Inc. All rights reserved. Please read our Terms of Useand Privacy Policy.Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Russell 2000 quote is 10 minutes delayed. var HeaderBox = initBoxQuote("AutoCompleteBox","AutoCompleteDropDown"); HeaderBox.IdleDisplayMsg = ""; HeaderBox.LocalRegion="USA"; HeaderBox.SetPreference('USA','EN',32); var FooterBox = initBoxQuote("AutoCompleteBoxFooter","AutoCompleteDropDownFooter"); FooterBox.IdleDisplayMsg = ""; FooterBox.LocalRegion="USA"; FooterBox.SetPreference('USA','EN',32); //clears all content/image boxes-------------------------------------------------------------------------------------- var imageIDs=new Array('siteDirectoryContent', 'siteMapContent', 'productsContent'); //content boxes .mi_row3{display: none} var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-16669347-1']); _gaq.push(['_setDomainName', '.morningstar.com']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); var Name = $('meta[name=DC.Creator]').attr("content").split(','); var Title = $('meta[name=DC.Title]').attr("content"); var URL = window.location.href; var Author = Name[1] + " " + Name[0]; var PubDate = $('meta[name=DC.Date]').attr("content"); _gaq.push(['_trackEvent', 'Article Title From Morningstar', Title, URL]); _gaq.push(['_trackEvent', 'Author Name From Morningstar', Author, URL]); _gaq.push(['_trackEvent', 'Article URL From Morningstar', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date From Morningstar', PubDate, URL]); _gaq.push(['_trackEvent', 'Article Title', Title, URL]); _gaq.push(['_trackEvent', 'Author Name', Author, URL]); _gaq.push(['_trackEvent', 'Article URL', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date', PubDate, URL]);

Bank LoansThe ThesisUnlike inflation-protected bonds, bank loans don't include an explicit mechanism to ward against inflation. But they stand to be fairly hardy when inflation is on the move. That's because bank-loan payouts fluctuate in line with the London Interbank Offered Rate--the rate that banks charge one another to borrow money. When the LIBOR heads up, which is often the case during inflationary environments, so do bank-loan coupon payments.

Best BetsBank-loan funds might seem to have everything you need for the current economic environment: imperviousness to rising interest rates plus some inflation-fighting characteristics. But investors should tread with caution in this varied category. Due to credit sensitivity and forced bank-loan selling from institutional investors, the average bank-loan fund lost a shocking 29% in 2008. Morningstar's favorite fund here is one of the group's slow and steady options,  Fidelity Floating Rate High Income , where manager Christine McConnell assiduously avoids the market's riskiest loans. As with TIPS, think about dribbling money slowly into this category during a period of a few months rather than moving it in all at once. 

Commodities/Metals FundsThe Thesis The premise behind owning commodities investments for inflation protection is straightforward: If the prices of goods are going up, an investment that captures price changes in food, energy, and basic-materials costs will thrive at the same time.

Best BetsAlthough the case for commodities for inflation protection is straightforward, the implementation isn't. Owning the stocks of commodities companies, as with an offering like  T. Rowe Price New Era displayPTip('PRNEX', 'PRNEX','YTD', '', '', '', '', '', '','msg','P');, provides indirect exposure to the prices of stuff. And while commodities futures-based funds aim to provide broad, and direct, exposure to the prices of goods, in practice they haven't been perfect trackers of commodity prices as a result of a situation called contango. (Read this article for a discussion of the pros and cons of these investments.) The PIMCO-managed  Harbor Commodity Real Return displayPTip('HACMX', 'HACMX','YTD', '', '', '', '', '', '','msg','P'); is Morningstar's sole  open-end Fund Analyst Pick within the commodities category. Our exchange-traded fund team, meanwhile, has  a few commodities picks, including  iPath DJ-UBS Commodity Index displayPTip('DJP', 'DJP','YTD', '', '', '', '', '', '','msg','P');. At the risk of sounding like a broken record, this is another good category for dollar-cost-averaging.

StocksThe ThesisStocks are another indirect way to gird your portfolio against the threat of inflation. Their returns are variable, in contrast with fixed-rate investments, giving them the potential for higher returns than bonds. That means that inflation could take a smaller bite, in percentage terms, out of your future purchasing power.

Best BetsNot all stocks will thrive in an inflationary environment, and some companies may even see their profitability flag. To help identify companies with a strong history of profitability through a variety of economic environments, screening for firms with high returns on equity is a good starting point. Morningstar's preset  Wealth Creators screen can help you identify such firms, and layering on an additional screen for wide moats will further winnow down the universe to companies with long-term competitive advantages. Fund investors have a few top options, including  Vanguard Dividend Growth displayPTip('VDIGX', 'VDIGX','YTD', '', '', '', '', '', '','msg','P'); and  T. Rowe Price Dividend Growth displayPTip('PRDGX', 'PRDGX','YTD', '', '', '', '', '', '','msg','P'); (traditional actively managed funds) and the index fund Vanguard Dividend Appreciation (available as a conventional  mutual fund displayPTip('VDAIX', 'VDAIX','YTD', '', '', '', '', '', '','msg','P'); and  ETF displayPTip('VIG', 'VIG','YTD', '', '', '', '', '', '','msg','P');). 

A version of this article appeared on Dec. 9, 2010.

See More Articles by Christine Benz

New! 30-Minute Money Solutions Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.   Order Your Copy Today--$16.95        Return to Discuss

Be Seen. Be Heard. Become a Morningstar Contributor.Reach a readership of advisors, professionals, and active investors. Submit your commentaries for publication on Morningstar.com.

Securities mentioned in this article Ticker Price($) Change(%) Morningstar Rating Morningstar Analyst Report With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies. Video Reports Even in a Slow Economy,... More Videos... Most Popular Related News Also in Investing Specialists Berkshire Hathaway Whittles Portfolio Down Further Sponsored Links Buy a Link Now Sponsor Center Please Wait... PERSONALFINANCE USA_PRDGX,USA_PRNEX,USA_VDIGX,USA_VIPSX,USA_FFRHX,USA_TIP,USA_VIG,USA_DJP,USA_HARRX,USA_VDAIX,USA_WIP,USA_HACMX FO_USA_PRDGX FO_USA_PRNEX FO_USA_VDIGX FO_USA_VIPSX FO_USA_FFRHX FE_USA_TIP FE_USA_VIG FE_USA_DJP FO_USA_HARRX FO_USA_VDAIX FE_USA_WIP FO_USA_HACMX &primaryKeyword=PERSONALFINANCE 2 {CommentWebService} OAS_AD('Bottom'); Content Partners Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Stocks by: Title Ticker Popularity Interest Funds by: Title Symbol Popularity Interest Articles by: Title Date Popularity Interest Stock Groups by: Popularity Interest Favorites Title Fund Groups by: Popularity Interest Favorites Title Article Groups by: Popularity Interest Favorites Title Premium Stocks by: Title Ticker Popularity Interest Premium Funds by: Title Symbol Popularity Interest Premium Articles by: Title Date Popularity Interest Independent. Insightful. Trusted. Morningstar provides stock market analysis; equity, mutual fund, and ETF research, ratings, and picks; portfolio tools; and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2010 Morningstar, Inc. All rights reserved. Please read our Terms of Useand Privacy Policy.Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Russell 2000 quote is 10 minutes delayed. var HeaderBox = initBoxQuote("AutoCompleteBox","AutoCompleteDropDown"); HeaderBox.IdleDisplayMsg = ""; HeaderBox.LocalRegion="USA"; HeaderBox.SetPreference('USA','EN',32); var FooterBox = initBoxQuote("AutoCompleteBoxFooter","AutoCompleteDropDownFooter"); FooterBox.IdleDisplayMsg = ""; FooterBox.LocalRegion="USA"; FooterBox.SetPreference('USA','EN',32); //clears all content/image boxes-------------------------------------------------------------------------------------- var imageIDs=new Array('siteDirectoryContent', 'siteMapContent', 'productsContent'); //content boxes .mi_row3{display: none} var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-16669347-1']); _gaq.push(['_setDomainName', '.morningstar.com']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); var Name = $('meta[name=DC.Creator]').attr("content").split(','); var Title = $('meta[name=DC.Title]').attr("content"); var URL = window.location.href; var Author = Name[1] + " " + Name[0]; var PubDate = $('meta[name=DC.Date]').attr("content"); _gaq.push(['_trackEvent', 'Article Title From Morningstar', Title, URL]); _gaq.push(['_trackEvent', 'Author Name From Morningstar', Author, URL]); _gaq.push(['_trackEvent', 'Article URL From Morningstar', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date From Morningstar', PubDate, URL]); _gaq.push(['_trackEvent', 'Article Title', Title, URL]); _gaq.push(['_trackEvent', 'Author Name', Author, URL]); _gaq.push(['_trackEvent', 'Article URL', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date', PubDate, URL]);

Commodities/Metals FundsThe Thesis The premise behind owning commodities investments for inflation protection is straightforward: If the prices of goods are going up, an investment that captures price changes in food, energy, and basic-materials costs will thrive at the same time.

Best BetsAlthough the case for commodities for inflation protection is straightforward, the implementation isn't. Owning the stocks of commodities companies, as with an offering like  T. Rowe Price New Era , provides indirect exposure to the prices of stuff. And while commodities futures-based funds aim to provide broad, and direct, exposure to the prices of goods, in practice they haven't been perfect trackers of commodity prices as a result of a situation called contango. (Read this article for a discussion of the pros and cons of these investments.) The PIMCO-managed  Harbor Commodity Real Return displayPTip('HACMX', 'HACMX','YTD', '', '', '', '', '', '','msg','P'); is Morningstar's sole  open-end Fund Analyst Pick within the commodities category. Our exchange-traded fund team, meanwhile, has  a few commodities picks, including  iPath DJ-UBS Commodity Index displayPTip('DJP', 'DJP','YTD', '', '', '', '', '', '','msg','P');. At the risk of sounding like a broken record, this is another good category for dollar-cost-averaging.

StocksThe ThesisStocks are another indirect way to gird your portfolio against the threat of inflation. Their returns are variable, in contrast with fixed-rate investments, giving them the potential for higher returns than bonds. That means that inflation could take a smaller bite, in percentage terms, out of your future purchasing power.

Best BetsNot all stocks will thrive in an inflationary environment, and some companies may even see their profitability flag. To help identify companies with a strong history of profitability through a variety of economic environments, screening for firms with high returns on equity is a good starting point. Morningstar's preset  Wealth Creators screen can help you identify such firms, and layering on an additional screen for wide moats will further winnow down the universe to companies with long-term competitive advantages. Fund investors have a few top options, including  Vanguard Dividend Growth displayPTip('VDIGX', 'VDIGX','YTD', '', '', '', '', '', '','msg','P'); and  T. Rowe Price Dividend Growth displayPTip('PRDGX', 'PRDGX','YTD', '', '', '', '', '', '','msg','P'); (traditional actively managed funds) and the index fund Vanguard Dividend Appreciation (available as a conventional  mutual fund displayPTip('VDAIX', 'VDAIX','YTD', '', '', '', '', '', '','msg','P'); and  ETF displayPTip('VIG', 'VIG','YTD', '', '', '', '', '', '','msg','P');). 

A version of this article appeared on Dec. 9, 2010.

See More Articles by Christine Benz

New! 30-Minute Money Solutions Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.   Order Your Copy Today--$16.95        Return to Discuss

Be Seen. Be Heard. Become a Morningstar Contributor.Reach a readership of advisors, professionals, and active investors. Submit your commentaries for publication on Morningstar.com.

Securities mentioned in this article Ticker Price($) Change(%) Morningstar Rating Morningstar Analyst Report With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies. Video Reports Even in a Slow Economy,... More Videos... Most Popular Related News Also in Investing Specialists Berkshire Hathaway Whittles Portfolio Down Further Sponsored Links Buy a Link Now Sponsor Center Please Wait... PERSONALFINANCE USA_PRDGX,USA_PRNEX,USA_VDIGX,USA_VIPSX,USA_FFRHX,USA_TIP,USA_VIG,USA_DJP,USA_HARRX,USA_VDAIX,USA_WIP,USA_HACMX FO_USA_PRDGX FO_USA_PRNEX FO_USA_VDIGX FO_USA_VIPSX FO_USA_FFRHX FE_USA_TIP FE_USA_VIG FE_USA_DJP FO_USA_HARRX FO_USA_VDAIX FE_USA_WIP FO_USA_HACMX &primaryKeyword=PERSONALFINANCE 2 {CommentWebService} OAS_AD('Bottom'); Content Partners Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Stocks by: Title Ticker Popularity Interest Funds by: Title Symbol Popularity Interest Articles by: Title Date Popularity Interest Stock Groups by: Popularity Interest Favorites Title Fund Groups by: Popularity Interest Favorites Title Article Groups by: Popularity Interest Favorites Title Premium Stocks by: Title Ticker Popularity Interest Premium Funds by: Title Symbol Popularity Interest Premium Articles by: Title Date Popularity Interest Independent. Insightful. Trusted. Morningstar provides stock market analysis; equity, mutual fund, and ETF research, ratings, and picks; portfolio tools; and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2010 Morningstar, Inc. All rights reserved. Please read our Terms of Useand Privacy Policy.Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Russell 2000 quote is 10 minutes delayed. var HeaderBox = initBoxQuote("AutoCompleteBox","AutoCompleteDropDown"); HeaderBox.IdleDisplayMsg = ""; HeaderBox.LocalRegion="USA"; HeaderBox.SetPreference('USA','EN',32); var FooterBox = initBoxQuote("AutoCompleteBoxFooter","AutoCompleteDropDownFooter"); FooterBox.IdleDisplayMsg = ""; FooterBox.LocalRegion="USA"; FooterBox.SetPreference('USA','EN',32); //clears all content/image boxes-------------------------------------------------------------------------------------- var imageIDs=new Array('siteDirectoryContent', 'siteMapContent', 'productsContent'); //content boxes .mi_row3{display: none} var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-16669347-1']); _gaq.push(['_setDomainName', '.morningstar.com']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); var Name = $('meta[name=DC.Creator]').attr("content").split(','); var Title = $('meta[name=DC.Title]').attr("content"); var URL = window.location.href; var Author = Name[1] + " " + Name[0]; var PubDate = $('meta[name=DC.Date]').attr("content"); _gaq.push(['_trackEvent', 'Article Title From Morningstar', Title, URL]); _gaq.push(['_trackEvent', 'Author Name From Morningstar', Author, URL]); _gaq.push(['_trackEvent', 'Article URL From Morningstar', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date From Morningstar', PubDate, URL]); _gaq.push(['_trackEvent', 'Article Title', Title, URL]); _gaq.push(['_trackEvent', 'Author Name', Author, URL]); _gaq.push(['_trackEvent', 'Article URL', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date', PubDate, URL]);

StocksThe ThesisStocks are another indirect way to gird your portfolio against the threat of inflation. Their returns are variable, in contrast with fixed-rate investments, giving them the potential for higher returns than bonds. That means that inflation could take a smaller bite, in percentage terms, out of your future purchasing power.

Best BetsNot all stocks will thrive in an inflationary environment, and some companies may even see their profitability flag. To help identify companies with a strong history of profitability through a variety of economic environments, screening for firms with high returns on equity is a good starting point. Morningstar's preset  Wealth Creators screen can help you identify such firms, and layering on an additional screen for wide moats will further winnow down the universe to companies with long-term competitive advantages. Fund investors have a few top options, including  Vanguard Dividend Growth and  T. Rowe Price Dividend Growth displayPTip('PRDGX', 'PRDGX','YTD', '', '', '', '', '', '','msg','P'); (traditional actively managed funds) and the index fund Vanguard Dividend Appreciation (available as a conventional  mutual fund displayPTip('VDAIX', 'VDAIX','YTD', '', '', '', '', '', '','msg','P'); and  ETF displayPTip('VIG', 'VIG','YTD', '', '', '', '', '', '','msg','P');). 

A version of this article appeared on Dec. 9, 2010.

See More Articles by Christine Benz

New! 30-Minute Money Solutions Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.   Order Your Copy Today--$16.95        Return to Discuss

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A version of this article appeared on Dec. 9, 2010.

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