ou've probably heard the saying, "hedging your bets." The idea is to put some money on the opposing side of the bulk of your money to guard against huge losses. This could apply to roulette, horse racing - or investing.

One of the most commonly discussed hedge methods are inflation hedges. These are investments that stay steady when inflation rises and the market tanks. Whenever the stock market bounces off new records, we hear nervous investors talking about whether it's time to get out of stocks. Don't listen. Stocks win. Betting against them doesn't. Still, it makes sense to hedge your portfolio by putting a small portion of it into an asset class that does well when stocks do poorly. Inflation historically has come back time and again in this nation's history. If you have a rounded portfolio that includes protection against inflationary trends, you're asset allocation is more rounded.

You don't use a hedge when you anticipate that stocks will do poorly. It should be part of your permanent portfolio, saving you the trouble of trying to guess when you'll need it.

Although the idea of using a hedge against inflation is appealing, finding an asset class that works is a challenge. Let's take a look at the options.

In times of inflation or when confidence in the dollar is at a low ebb, investors traditionally have turned to gold as a safe haven against the ravages of soaring prices and uncertainty. Gold coins, such as American Gold Eagles and Canadian Maple Leafs, offer ways to own gold directly.

You can also buy certificates from firms such as Merrill Lynch and Benham representing gold on deposit in somebody's vault. You can speculate on gold using options or futures, and you can invest in gold-oriented mutual funds, which often buy shares in mining companies, many of them overseas.

The theory goes that a resource like gold becomes more valuable as inflation rises. Allegedly, that's because people want something with tangible value during inflationary periods rather than paper money that becomes less valuable each day that inflation stays high.

The evidence shows otherwise, however. Over the past decade, gold has not performed well during periods of inflation or fears of inflation. (But it did do quite well during the runaway inflationary periods of the late 1970s.)

Investing in gold is problematic in another way, too. The best way to get a pure investment in gold is to buy bullion. But then you've either got to physically take ownership of it and pay state sales tax or pay for storage. You must also consider shipping and insurance costs.

The easiest way to buy gold is in a gold mutual fund. It's clean and convenient.

Unfortunately, the performance of the mutual fund may have little to do with the price of gold. Gold mutual funds invest in companies that mine gold and other precious metals as well. If the fund's manager believes the outlook for gold is poor, he may move out of gold. If he's wrong and the price of gold moves up, you lose as the investor.

Real estate is an obvious hedge against inflation. In inflationary times, such as the late 1970s and early 80s, real estate values soared. Many investment advisers suggest that if you can afford it, buy a second home in resort or vacation areas where property values are likely to rise. Like gold, though, it's tough to use it as a hedge if you don't relish buying individual properties.

Many investors prefer buying property through real estate investment trusts, or REITs. REITs are companies that trade on the stock exchange just like General Motors and Procter & Gamble. Instead of making cars and toothpaste, a REIT manages a portfolio of real estate.

The trouble with REITs is that they act less like real estate and more like the financial assets you're trying to hedge.

Some people think they're investing in real estate because REITs have real estate in the name. But it turns out that REITs behave like stocks and sometimes like bonds.

John Rekenthaler, publisher of Morningstar Mutual Funds, the Chicago rating company, argues that funds investing in natural resources can act as a hedge. These funds invest in the stocks of companies that own or develop natural resources such as paper, metals or energy products. They also hold stock in businesses that supply natural resource companies, such as those in the energy service industry.

Trading commodities makes even less sense for most people. Unless you're a wheat farmer, oil tycoon or member of the Chicago Board of Trade, this is not a business to be in. True, it offers potentially huge returns, since you can control a relatively large asset by putting down just 5 percent or 10 percent of its value in cash. But you also can lose your shirt.

Commodities contracts covering a wide range of items, including precious and industrial metals, hogs, lumber, sugar, cotton and many others, are traded on various exchanges, primarily in New York and Chicago. These include the Chicago Mercantile Exchange, the New York Cotton Exchange and the New York Mercantile Exchange.

The original purpose of this system was to permit, say, a food processor to hedge the risks inherent in agriculture. Thus, if you make crackers for a living, you could go into the marketplace in the summer and buy a contract for wheat in winter, giving yourself more predictable costs and insuring against a spike in prices that could send your business into a tailspin.

For some people, though, commodities markets today are like casinos, offering the high stakes and fast thrills of gambling. The bottom line: Do not try commodities trading without extensive study. Only risk money you wouldn't mind losing. And never invest with a salesman who calls you out of the blue.

What this leaves you with is choosing one of these options that appeals to you as an investor and fits into your overall portfolio. A truly balanced portfolio always includes a slight hedge against your best bet.