4 TIPS TO HEDGE AGAINST INFLATION

In periods of high inflation, people’s buying power can quickly be eroded. You may feel the impact on your daily spending, but you feel the impact on your long-term investments. Below, we outline the best tips to position your portfolio to perform during periods of high inflation. 

Let’s get to it!

TIP #1 – REMAIN DIVERSIFIED

Whether in the current market environment or five years from now, it is always recommended to maintain a diversified portfolio. Investing in different asset classes spreads out your risk. 

If one asset class is performing poorly, another investment type can temper the volatility within your portfolio.

Diversification doesn’t prevent loss but can reduce the risk of being too heavily invested in one market versus another. You can diversify by combining stock with bonds (although the bond market is not very sexy right now), large company stocks with small company stocks, U.S. stocks with international stocks, and stocks from across different sectors (tech, financial, energy, etc.).

TIP #2 – INCLUDE AN ALLOCATION TO INTERNATIONAL ASSETS

The “home bias” is a real dilemma when American investors favor U.S. stocks and bonds due to emotions or feeling comfortable with the familiar. But the same economic forces are at play, meaning that U.S. assets tend to move in tandem. This can be detrimental to your long-term investment returns. Right? Right.

Adding foreign stocks and bonds can help hedge your investment portfolio against the domestic challenges of inflation. You can access overseas exposure through exchange-traded funds (ETFs) and mutual funds. Your wealth manager can help you determine which type of international exposure makes sense for you.

TIP #3 – CONSIDER INFLATION-HEDGING ASSETS

When the market heat is on, consider the following to hedge against inflation:

• Real Estate and/or real estate index funds
• Commodity and/or commodity-related equities (energy, metals, etc.)
• Value Stocks
• Treasury Inflation-Protected Securities (TIPS)
• Short-duration bonds 

TIP #4 – PLAN IN ADVANCE

You’re more likely to navigate periods of high inflation when you have a plan. Your wealth manager can help you establish a diversified investment mix that takes into account your particular risk tolerance, time horizon, goals, challenges, and financial situation. Remain committed to your plan to see yourself through periods of high inflation. 

At TMW Advisory, we believe a comprehensive plan is vital to helping you achieve your goals. Finding the right strategy for you and your financial goals is most important. If you would like assistance connecting the dots between your investment strategy and financial goals, schedule a call with a member of our TMW team.