Should I Buy Gold Now To Hedge Against Future Inflation?

Due to the current market conditions, many investors are wondering if investments in gold should be added to their portfolios to hedge against future inflation risks. In the video below (direct link), author Larry Swedroe discusses why he thinks gold is not an appropriate hedge against inflation, as well as some alternative investments.

The debate about gold will probably continue on for eternity, but I tend to lean towards his analysis because gold is too volatile for my tastes. I do like the idea of keeping some physical gold bullion as a hedge against economic collapse, but not as ETFs taking up a huge chunk of my portfolio. I would rather have something that would fit into traditional asset allocations plans, providing both stability and a good (but not perfect) hedge against inflation. So let’s explore the recommended alternatives:

In tax-advantaged accounts like IRAs, Swedroe instead recommends Treasury Inflation-Protected Securities (TIPS) which adjust with the Consumer Price Index (CPI). For this, I have bought shares of the Vanguard Inflation-Protected Securities Fund (VIPSX). I could buy individual funds directly from the government at no cost, but for now I like the simplicity. I even increased my allocation recently.

In taxable accounts, he recommends highly-rated municipal bonds with a relatively short average maturity of 3-5 years. For this, I am looking to buy shares of the Vanguard Limited-Term Tax-Exempt Fund (VMLTX). It is currently about 83% AA/AAA rated municipal bonds, and keeps a maturity of between 2 and 6 years (currently 2.8). The yield is currently a tax-exempt 2.12%, and it has a low expense ratio of 0.20%. If inflation does rise, the yield should rise to keep up.

I’m actually surprised he didn’t bring up commodities funds here as well, which I’ve seen him recommend as insurance against unexpected severe inflation.

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