Dion Money Management Blog   Money Management for Retirees and Their Families

In an age where a single speech or confirmation can alter the course of the U.S. market, investors can government-proof their portfolios with several types of ETFs.

Bank failures, massive bailout packages, regulatory overhaul, health care overhaul and near-zero interest rates have all weighed heavily upon the U.S. equity market. It is nearly impossible for Americans to predict what new measure will sway the stock market.

ETFs are a good way of government-proofing your portfolio with alternative assets. By adding measured exposure to precious metals, Treasury Inflation Protected Securities, or TIPS, and international funds, you are one step closer to protecting your portfolio from unpredictable U.S. policy.
Precious Metals
Physically backed precious metals ETFs are the safest, most effective way to gain exposure to the metals market. SPDR Gold Shares (GLD), the second-largest U.S. ETF, gives investors access to ownership in a stockpile of the physical metal. Owning GLD is an inexpensive, low-stress alternative to buying gold bars. The iShares Silver Trust (SLV) gives investors access to physical silver — a metal that has a number of industrial applications. SLV is also large and liquid.

The latest competitor in the physically backed metals ETF space is international ETF issuer ETF Securities. After launching both physically backed gold and silver funds in 2009 to compete with entrenched U.S. ETFs, ETF Securities most recently launched physically backed platinum and palladium funds.

Investor interest in the newly launched ETFS Physical Platinum ETF (PPLT) and the ETFS Physical Palladium ETF (PALL) is already soaring. Together, the funds had attracted more than half a billion in assets as of January 22.

Since gold, silver and platinum all have different applications, it may be most effective to use two of the funds to build a small precious-metals position in a diversified portfolio.

TIPS
One way to proof your portfolio against U.S. government policy is by gaining exposure to securities that will help protect against inflation. While buying individual Treasury Inflation Protected Securities can be tricky, investors can gain exposure to an index of these instruments through the iShares TIPs ETF (TIP).  TIP tracks the Barclays Capital U.S. Treasury Inflation Protected Securities Index, and it holds 29 issues with AAA ratings. While there are new ETFs (specifically from competitor PIMCO) trying to make a name in this space, TIP is still the largest and most liquid TIPS ETF.

Emerging Markets Funds

The globe may be flattening, but the tremendous growth in emerging markets is obvious to even the most casual investor. While these developing areas tend to have more volatility than developed regions, limited exposure to growing markets can help to augment a more traditional portfolio.

Many areas like China and India have exhibited a surge in growth, even as the U.S. has struggled to regain its footing.

Two ETFs to consider for India are the PowerShares India Portfolio ETF (PIN) and the Wisdom Tree India Earnings ETF (EPI). While both of these funds share many of the same holdings, PIN is more heavily weighted toward tech at this time.

While China has already experienced tremendous growth, more potential remains. One ETF to consider is the Claymore/AlphaShares China Small Cap(HAO). This ETF contains fewer of the state-run companies that dominate other ETF portfolios.

Government intervention and support has been one of the greatest market forces since 2008. While U.S. equities appear to be staging a recovery, it is nevertheless important to diversify your portfolio with different types of assets.

This type of investing isn’t “betting against the U.S.” It is simply smart diversification.