Menu
4 Ways to Protect Your Portfolio From Inflation

4 Ways to Protect Your Portfolio From Inflation

Inflation
26 Nov 2021

Economists have warned about the potential for rapid inflation dating back several decades.  However, those fears went unrealized until recent months.  Inflation is now at a 30-year high.  As well, consumer prices in the United States increased more than 6% last month alone (October 2021).  

 

Is your portfolio inflation-proof? Contact McGervey Wealth Management and find out!

 

By working with a financial advisor in Canton, OH to strategically position your investments to guard against ever-rising inflation and the devaluing of the dollar, you won’t be stung nearly as badly.  Our fee-only fiduciary CERTIFIED FINANCIAL PLANNER™ Professionals are here to help you protect your hard-earned money against the threat of inflation with wealth management strategies tailored to your current financial standing as well as your nuanced goals.

Outpace Inflation With Stocks

Investing your money in the right equities amidst inflation and your financial nest egg has the potential to grow faster than the rate at which the dollar loses value.  Even if your stock investments increase in value at the same pace as inflation, the return on your investment may outpace that provided by bank savings accounts, CDs, money market accounts, and other comparably conservative investments.  

However, regularly altering your exposure to stocks or moving in and out of specific stocks as the market undulates has the potential to backfire.  Protecting your portfolio against inflation with stocks may prove to work the best if you remain invested across the long haul.  The bottom line is stocks typically outpace inflation across posterity.  

As an example, the S&P index increased about 20% during 2021 as of the time of this publication.  Inflation has soared yet it isn’t anywhere near 20% for the year.  Shift your portfolio toward equities, diversify your holdings in stocks that span a litany of sectors and your financial nest egg may increase in value faster than the rate of inflation.

If you are curious as to how to choose a fiduciary who can help you invest your money in the right stocks, zero in on McGervey Wealth Management. We are a group of fee-only, fiduciary CERTIFIED FINANCIAL PLANNER™ Professionals located in Canton, OH.  We do not upsell specific investment vehicles, meaning the investment strategies we highlight will help you mitigate the impact of inflation through diversification across sectors, risk level, and geographic regions.  

Though no financial advisor can handpick the top stocks every single financial quarter, this professional should be able to steer you toward specific sectors that perform historically well when inflation occurs.  As an example, energy stocks tend to perform better than others amidst inflationary environments as consumers will continue to buy these related products regardless of price increases.  

Alternatively, investing in publicly traded companies that sell luxury items/services may not be the best way to play the market as consumers tend to pull back spending on such unnecessary items when the dollar is devalued.

CIPs and TIPs

TIPS, an acronym short for treasury inflation-protected securities, are an investment instrument that increases at the same pace as inflation as measured by the consumer price index (CPI).  TIPs decrease when deflation occurs.  TIPs may also be prudent investments amidst inflation as they pay fixed interest on a semiannual basis, usually below that provided through ordinary Treasury bonds.  

TIPs can be sold whenever desired through the secondary market.  Alternatively, you can hold TIPS until they reach maturity.  The treasury offers TIPS in auctions that are either competitive or non-competitive, with maturities of 30, 10, or 5 years.  There are even corporate bonds available that include inflation protection referred to with the acronym of CIPs.  

TIPS may be a viable hedge against ongoing inflation yet only when used as a component of a conservative strategy as opposed to being used as a primary position.  

Retirees who gradually draw down their investment portfolio tend to be partial to TIPs as a hedge.  TIPs protect the bond position as well as cash needs in the short term.  A downside to TIPs is they may not provide growth beyond the rate of inflation, meaning there is a cap to potential gains.

What About Real Estate?

Real estate prices are soaring faster than incomes are rising.  Escalating property values are partially the result of inflation.  However, some of the nation’s hottest markets are now stagnating as evidenced by Zillow’s considerable losses after attempting to flip homes through iBuying.  

Though there is no guarantee investing in real estate will prevent your money from devaluation as a result of inflation, historical trends show real estate is generally a safe haven when the dollar is devalued.  

There is no need to invest in actual properties that require the payment of taxes and ongoing maintenance.  Another option is investing in real estate through stocks, exchange-traded funds (ETFs), and mutual funds with their own respective real estate investments.  

The best comprehensive financial planning Canton, OH experts stress the importance of exposure to REITs in nearly every client portfolio.  REITs, short for real estate investment trusts, provide an opportunity to invest in real estate without overcoming significant barriers to entry.  

Precious Metals and Commodities

Gold is no longer considered a nearly risk-free safe haven during inflationary periods and geopolitical uncertainty as it was in years past.  Some financial advisors may not recommend that clients have exposure to gold or other precious metals amidst prolonged inflation.  The value of this metal is largely speculative, meaning it is difficult to predict its return, regardless of whether inflation continues.   

However, commodities funds may have the potential to help offset spiking inflation.  Gold and other precious metals tend to retain their value as the value of the dollar decreases, meaning investing money in this space may reduce the rate at which your savings deteriorate when inflation occurs.  In particular, gold may perform well when there is considerable inflation, meaning it is a meritorious hedge against potentially extreme inflation.

The fee-only fiduciary advisors at McGervey Wealth Management can review the nuances of potential investments in gold, additional precious metals, commodities as well as cryptocurrencies to determine the specific balance that is optimal for your portfolio in the context of inflation. Investment Management strategies for your specific financial picture and investing goals can help to mitigate the risk posed by ongoing inflation.

By working with a fiduciary like McGervey Wealth Management, you can be assured you’re getting investment advice from a firm that has the obligation to disclose conflicts of interest and put your interests ahead of its own. 

At McGervey Wealth Management, we get to know you on a personal level and keep things simple, using common language everyone can understand. To learn more about ways you can protect your portfolio from inflation contact us today.

McGervey Wealth Management eBook

More About the Author: E. Michael McGervey, CFP®, CRPC®

Mike is passionate and skilled at helping clients solve complex financial challenges. He’s known for his thoughtful communication, educational approach, and exceptional customized service. Mike has been a sought-after source for financial television, magazines, and newspapers looking for insightful analysis. His expertise has been featured by CNBC, FOX Business and...