In May of 2022, inflation shocked American investors when it rose to 8.6%, a 40-year high. It’s no surprise that investors are now nervous about where to put their money and how to hedge against inflation for long-term success.
We understand this concern and are prepared to protect our clients against losses during this time of high inflation. There are a variety of strategies you can employ to protect yourself against this type of economic uncertainty to come out ahead in investing.
So, what exactly should we do when our dollar has less purchasing power? Keep reading for tips on how to respond to inflation.
Invest in Recession-Proof Stocks
When consumers have less purchasing power, discretionary spending like subscriptions, restaurant budgets, and other ancillary expenses will be the first to go. Companies in these sectors will take the first hits, causing chaos in the stock market.
However, certain consumer goods and services will always be necessary regardless of the economy. Essential goods, energy, healthcare, and other staple industries are great options for investing. As prices rise, so will these companies’ profits. Additionally, investing in innovation is a viable strategy. As companies find new ways to solve the problems we face, they may capture a larger portion of the dollars we spend.
Reallocate Your Fixed Income Portfolio
Bonds tend to lose their purchasing power during times of inflation; as living costs go up, your interest payments get you less and less each year.
However, there are some ways to keep up with the rising cost of food, energy and housing. Corporate bonds, which pay more than government bonds, may give you a better chance at earning more than inflation. Treasury Inflation-Protected Securities (TIPS) tend to rise in value as inflation increases. While they don’t promise the large paydays as the stock market, TIPS can protect you from price increases as they increase in value each year based on the rate of inflation. A knowledgeable financial advisor can help you determine the best investment strategy for your personal goals.
Invest in Alternative Assets
Real estate is often one place investors look for inflation-protected investment returns. The value of real estate typically goes up over the long term. Real estate may be accessed by purchasing properties individually or through partnerships, or by purchasing publicly traded REITs.
Additional assets that have a lower correlation to the traditional markets and the ability to hedge inflation may be appropriate as well. Commodities and Gold have historically hedged against inflation. Hedged strategies such as long/short equity may also play a role in a portfolio designed to have low correlation to the stock and bond markets.
A diversified portfolio allows you to grow your wealth and passive income to start planning for retirement or other life goals now.
OneAscent can help you build a portfolio that aligns with your risk tolerance and helps you achieve financial goals on your timetable. To learn more about our unique approach to investing and what OneAscent has to offer, contact our offices today!