Stocks: The Best Inflation Hedge

Over the long-term, stocks have historically been unaffected by overall price increases.

One of the biggest threats facing investors is the possibility that massive U.S. budget deficits and the Federal Reserve's easy monetary policy will lead to significant inflation. As an investor, how should you structure your portfolio to guard against such an event?

First and foremost, don't abandon stocks. As long as inflation doesn't ramp up to the double-digit levels of the 1970s and early 1980s -- a scenario I consider extremely unlikely -- stocks will act as an excellent hedge. The reason is simple: Stocks are claims on real assets, such as land and plant and equipment, which appreciate in value as overall prices increase.

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."