NEW YORK (TheStreet) -- With the 30-year Treasury yield back under 4%, there are few signs of inflation and investors should consider repositioning their bets, with several ETFs available for the job.

Economic data remains weak and there is unlikely to be a resurgence of inflation even if the recovery stays on track. Home prices are holding steady, unemployment is high and interest rates remain low. The CPI has shown increases thanks to favorable comparisons, but these will start to disappear. Modest growth has failed to broadly push up prices, with only a few specific counter examples.

Short of rapid economic growth, something that few economists, if any, predict, I expect that investors will do well by assuming inflation is a potential, rather than imminent threat.

With economic growth and no inflation, high-yield stocks are likely to do well. iShares Dow Jones Select Dividend Index ( DVY) is a good stock ETF. It's down about 9% over the past three months, nearly 4% better than the S&P 500 Index. Over the long haul and in a low-rate environment, DVY is likely to outperform the broader market. Investors can use the dips to pick up shares and lock in higher yields.

The JP Morgan Alerian MLP ETN ( AMJ) has performed better; it's down about 1% since late April.

On the more conservative side, short-term government bonds will do well in deflation. An ETF such as iShares Barclays 1-3 Year Treasury ( SHY) will hold its value and also offers some inflation protection, since yields can adjust more quickly.

Even iShares Barclays TIPS ( TIP) isn't a terrible play. Investors who are really worried about inflation may be more comfortable holding TIP, but in a steady deflation, the value of these bonds could decline.

TIPS will not decline below face value, but if the principal of the bonds held by the fund have increased due to inflation, that added principal can be lost in a deflation. The losses will be mild, however, and some investors may be willing to accept the loss as a price for inflation protection.

Investors can adjust their bond position based on aggressiveness and conviction. At the most conservative end is cash and short-term bonds, with potential gains and losses increasing as investors move out the yield curve. iShares Barclays 20+ Year Treasury ( TLT) will see the largest gains and losses from shifts in interest rates.

For added aggressiveness, there is the 2X leveraged ProShares Ultra 20+ Year Treasury ( UBT). Its opposite is the extremely popular ProShares UltraShort 20+ Year Treasury ( TBT).

Another angle is corporate debt. One fund I've used for clients is the Federated Intermediate Corporate Bond ( INISX). The economy isn't falling off a cliff and that means corporations will be able to pay their bondholders. Corporations have also been raising cash due to uncertainty over potential policies from Washington and the weak economy, and these stronger balance sheets are also good news for corporate bonds.

A solid ETF for intermediate corporate bonds is the Vanguard Barclays Intermediate Term Corporate Bond ( VCIT).

For investors who anticipate deflation may be related to currency and sovereign debt, PowerShares DB U.S. Dollar Index Bullish Fund ( UUP) and CurrencyShares Japanese Yen ( FXY) should perform well. FXY has been the more likely to gain on days when the stock market drops, but UUP could have larger gains if Europe faces another round of debt fears. ProShares UltraShort Euro ( EUO) is a 2X leveraged bet against the euro versus the U.S. dollar.

Moving out towards even more extreme deflation, gold is likely to serve as a defensive asset. For countries deep in debt, deflation makes their problem worse, not better, which is why many central banks and governments have tried generating inflation.

The safe haven appeal of the metal will grow during a bad bout of deflation and this should at least mitigate a decline in price. As with TIP, this may be a good choice for investors who are worried about inflation, although unlike TIP, gold may not perform well unless inflation becomes a serious problem.

iShares Comex Gold ( IAU), SPDR Gold Shares ( GLD) and ETFS Gold ( SGOL) are all acceptable. In a bid to draw market share away from GLD, IAU recently split 10 for 1 and cut its fees to 0.25%, less than the 0.4% at GLD and 0.39% as SGOL.

Investors may want to short the market. For most investors, using short leverage is a bad idea because it will just lead to bigger losses. Timing is critical when playing the short side because the moves are much shorter and faster. Rebounds during a decline tend to be some of the biggest up days in market history, which means overstaying by even a day or two can be very costly.

Also realize that the inverse ETFs deliver "double" the return of the market without leverage. For example, if the S&P 500 Index falls 5% in one day, SH should gain about 5%, good for 10% outperformance. If you are wrong in your timing, your losses will be just as large.

Inverse ETFs also reset daily and therefore suffer from compounding--and the volatility we've seen lately will only lead to even greater tracking error. However, for those who want to go short, ProShares Short S&P 500 ( SH) is large and liquid, while ProShares Short MSCI EAFE ( EFZ) and Short MSCI Emerging Markets ProShares ( EUM) cover the international side.

Another option is a mutual fund such as the Federated Prudent Bear ( BEARX) or Federated Market Opportunity ( FMAAX), two funds I have used for some clients. Retail investors may face a 5.5% load on these funds, which is a major drawback, but if investors can buy them without fees they are solid options. Over the past three months, the S&P 500 Index fell 13%, while FMAAX gained 4.7% and BEARX gained 11.5%.

Just as inflation isn't a strategy in itself, neither is deflation. The U.S. could enjoy an extended bout of very low interest rates and very low inflation or mild deflation, even as the economy recovers.

Stocks could rise in that environment, and with dividend yields at attractive levels, a fund such as iShares Dow Jones Select Dividend Index ( DVY) could best bonds. Technology may also perform well given the low debt levels of technology companies.

The best strategy for most investors is to hold a diversified portfolio of assets. Within that diversified portfolio, small changes in allocations and holdings can make a big difference. For instance, many investors may do better by reducing inflationary bets, rather than making specific deflationary bets.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion Money Management was long iShares Barclays TIPS, iShares Comex Gold, iShares Dow Jones Select Index.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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