So will we have inflation or deflation in the next 12 months?

I can say with some authority: Yeah, probably.

There has been much press on the notion that we will have an increase soon in the overall price level—and recently there has been some buzz about a decrease, as well. In fact, here at On Wall Street, we’re not above embracing the concept of mixed messages, as we ran an article recently on the opportunities to help your clients regardless of whether prices rise or fall.

But to look at the possibility of deflation for a moment, if you’re in this camp, you can point weak growth across the developed economies, as well as a bleak jobs outlook, as your indicators.

Typical deflationary investments include long-term Treasurys (the coupon is fixed), perhaps dividend-paying stocks and, of course, good old-fashioned cash.

For one more possible deflationary investment, Index IQ has an ETF called IQ Real Return. It is typically viewed as a hedge to inflation, but the fact that it is a “real return” fund means it could also prove to be a valuable tool in times of deflation, says Adam Patti, CEO of IndexIQ. The fund also provides the liquidity and transparency inherent in an ETF structure, obviously, he notes, which tends to dampen portfolio volatility.

The fund began as a research project a couple of years ago, with the goal of determining the key drivers of inflation, using data back to 1910. In fact, Patti said, this research project was undertaken because they noted investors were shunning TIPs, at least in ETF products. So he wanted to come up with a new product that would appeal more to those investors seeking a safe haven.

The assets in the fund are the typical allocations that you’d expect from any well-balanced portfolio—commodities, some gold, energy, currencies and equities—but it is designed as just “fire insurance,” Patti says. It is best used as 5% to 15% of a portfolio, he says.

The fund is designed to earn real returns of 2% to 3%, but one of its overall uses is to keep volatility low, he says.

On the other side of this divide, the inflationary camp notes all the money that’s been pumped into system over the past year, as well as expected increase in demand from developing countries, as their indicators. And taking a long-term view, this is more likely to happen.

For inflationary periods, TIP bonds are among the best investments. As Patti noted, they may lose some of their effectiveness when sold in an ETF, but they can be bought as an individual security as well, if your client wants to go that route.

Other possible inflationary investments include foreign bonds to cash in on the growth potential in other countries.

But before you decide on a specific strategy for your client’s portfolio regarding inflation or deflation, you need to make sure they are very clear on their expectations. If they decide to “go safe” and invest with the idea that they will only make a couple of percentage points over inflation, but then inflation never really hits very hard, then they have to accept the fact that their overall returns are going to be lower.

So you not only have to be clear from the outset, but you have to stay in communication with them, as well, to make sure their expectations aren’t becoming detached from the decisions they made a few months ago. And if that has occurred, it may be time to sit down and reconsider the mix in their portfolio.