What exactly is inflation?
Protecting your portfolio from inflation is not rocket science. Inflation is simply a rise in prices with a decline in purchasing power over time. Economists measure inflation by calculating the percentage change in a price index over a period of time, generally over the last 12 months.
Think about your own life experiences and notice that as inflation rises it can dramatically affect asset classes. Mutual funds tied to the stock market can move in opposite directions as interest rates rise.
As inflation rises we clearly see this at the grocery store or gas station.
After helping protect our clients portfolio from inflationary pressures over the last many years in this video I go through everything you need to know.
How Inflation Affects Your Purchasing Power
What are the best ways to protect your money and portfolio from the ravages of inflation?
Unfortunately, a dollar today will not buy the same value of goods and services in the future.
Therefore because of inflation having strategies as a good hedge to offset inflation is wise.
Below are some strategies on how to protect your portfolio from inflation.
5 Ideas To Protect Yourself From Inflation
1.) Consider a broad base of equities like the S&P 500
Keep it simple and straightforward. Ticker symbol SPY represents the S&P 500. This is an exchange traded fund which represents the largest 500 companies in the S&P. Our many years of experience in helping investors have taught us to not get complicated with equity exposure.
Watching our video may give you some insight on how to protect yourself from inflation.
2.) Focusing on sectors like the energy sector could pay off handsomely.
Ticker symbol XLE is an excellent hedge against inflation..
This energy index has stocks in the oil and gas industry.
.
Below is a list of the top 5 stock holdings in the XLE
Name Symbol
- Exxon Mobil Corp XOM
- Chevron Corp CVX
- ConocoPhillips COP
- EOG Resources EOG
- Schlumberger SLB
3.) Commodities are a very large asset class
During inflation risk investors need a hedge. Commodities such as precious metals, natural gas, oil and beef can helpful
Especially if the stock market sags under rising inflation.
Below is a list of some of the top commodity ETFs
Name Symbol
- SPDR Gold Trust GLD
- iShares Silver Trust SLV
- United States Oil Fund USO
- United States Natural Gas Fund UNG
- Teucrium Corn Fund CORN
- Teucrium Soybean Fund SOYB
- Break wave Dry Bulk Shipping ETF BDRY
- One Gas Inc OGS
4.) Real Estate
Historically real estate investments have been considered one of the best hedges against inflation because you can pay less for your home over time compared to what you may pay in rising rent. This can help your wallet as you pay more for everyday items.
Owning rental property is one of the best hedges against inflation. Buying multifamily real estate is another great way to hedge against inflation because it usually appreciates along with the CPI. As rental income goes up, the value of your property increases with it.
Furthermore, some of the most successful and wealthy investors in our country are very large real estate investors. Simply put, follow the money.
5.) Treasury inflation protected securities / Commonly referred to as TIPS
Treasury inflation-protected securities(TIPS) are government-issued bonds that are indexed to inflation. So, when interest rates rise these treasury bond (TIPS) do not do down.
TIPS can generate positive returns as interest rates rise.
Summary
The above are some of the top asset classes to consider when seeking a hedge against inflation. Whether an investor is focused on the stock market , bond market, commodities or real estate.
Today it is easier than ever to invest in assets that provide a hedge against inflation…
Studying how the inflation rate can affects individual stocks, oil prices, gold prices and physical gold can prepare investors for higher inflation.
The Federal Reserve System is the central banking system of the United States.
Understanding how the Federal Reserve policies impact the inflationary environment is important. For example is the Fed raising rates to slow economic activity?
Or is the Fed lowering rates to stimulate the economy.
The Federal Reserve has a dual mandate to maintain long-term growth and to promote full employment.
One inflationary data point market participants watch closely is the Consumer Price Index referred to as the CPI. On a monthly basis the Bureau of Labor Statistics called the BLS publishes CPI data.
The major components of rising inflation are Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication are part of the CPI.
The core inflation rate is one of the most important data points for the US economy. The data is released on a monthly basis. As of October 2022 the US Core Inflation Rate is 6.28%
October of 2021 the core inflation rate was 4.56% And the long term average has been 3.66%
Rising interest rates can negatively impact the principal amount of many assets. Specifically corporate bonds, municipal bonds, treasury bonds, government bonds and bond funds.
Preceding the rise in inflation in the mid 1960s inflation had been running at 1% in 1964 and the preceding several years. During this era Congress crafted policies that would promote full employment and economic stability.
After World War II Congress passed policies it hoped would create greater economic stability. One law was the Employment Act of 1946. The act declared it a responsibility of the federal government to promote full employment.
Avoid the negative effects of rising inflation. Position your assets to take advantage of a rising inflation whether interest rates are rising or falling.
Inflationary pressures can seriously impact your financial goals. Understanding higher prices occur as inflation picks up. These inflationary times will create higher risks if an investor is not prepared.
Conclusion
Hopefully, the above list of ideas can help protect your portfolio from inflation along with your personal finances.
Occasionally using money market funds can help preserve the principal value of your assets when inflation perks up.
If you would like help with protecting your portfolio from inflation, click here and fill out a quick survey.
So, if you follow the above ideas, you’ll be able to start protecting your portfolio from the ravages of inflation. If you’d like to learn how you can do this in more detail, then watch our free training video here.
Don Giello
Don Giello is President and founder of DBG Capital Advisors, LLC For decades Don has been helping investors protect and grow their wealth. You can watch his free video How To Protect Your Wealth From Inflation. If you have any questions feel free to call 713-553-9101 or email don@dbgcapitaladvisors.com
