In the World of investing the practice of hedging is used to combat inflationary pressures. This is done in order to protect one's investments from adverse circumstances arising in particular industries and sectors, economic down turns and inflation. In the case of inflation, hedging involves investing in funds that traditionally perform well and/or better than most other funds during periods of high inflation. For example, in the United States a period of hight inflation was the 1970's during the first oil crisis period. During these times the value of the dollar declines against stronger foreign currencies and the spending power of one's income declines. This can often go hand in hand with rising cost of goods such as gasoline, and consumer staples further deteriorating one's spending power.

Financial institutions and Governments are well aware of inflation and take great measures to avoid it because of its negative affect on economic performance. For investors this is good news because it allows them to utilize these financial vehicles to hedge their own investments against inflation. A few of these investment vehicles are the following:

-U.S. Treasury Inflation Protected Securities (TIPS), British Inflation-linked Gilts (ILG's) and Canadian Real Return Bonds (RRB's)
-Gold and other Metal Exchange Traded Funds (ETF's)
-High Grade Inflation Protected Corporate Bonds (IPI's)
-High Yield Certificates of Deposit

U.S. Treasury Inflation Protected Securities (TIPS):

TIPS are a U.S. Government backed financial instrument first instituted in 1997 and that is periodically adjusted for inflation. For example, if inflation in time period A is 2% the TIPS return on investment will incorporate this into the total yield. If however, in period B the inflation rises to 3% the yield in the TIPS will also rise. In addition to this inflation protected yield is a 'real yield' of around 3.3%. So no matter what inflation is, the TIPS 'real yield' on top of inflation should be steady. A similar method is used in ILG's and RRB's.

Gold and Metal Exchange Traded Funds:

Gold and Metals have traditionally held their value well during periods of high inflation. This is due to the international confidence in Gold as an alternate form of exchange. Unlike money the supply of Gold cannot be drastically reduced or increased allowing its value to remain more fixed. During periods of high inflation, confidence in this more secure form of exchange rises leading to a steady

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