You may have seen the news recently that Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen said in interviews it’s time to retire the term “transitory” when discussing inflation. The Chairman added that while it’s difficult to predict how long the effects of supply chain issues will linger, “factors pushing inflation upward will linger well into next year.”
Not exactly the news any of us wants to hear at the start of a new year. If you're feeling a bit uneasy about inflation sticking around, the best thing you can do is to keep doing what you’re doing. Things like:
Save 10 to 15% of your income for retirement.
Take advantage of still historically-low interest rates.
Meet with your financial planner. After all, that’s why we are here—to alleviate your stress and answer your questions.
During our meeting, we can look at ways to protect your assets from inflation. Those include:
Treasury Inflation-Protected Securities (TIPS): TIPS increase with inflation and decrease with deflation, as measured by the Consumer Price Index. When a TIPS matures, you’re paid the adjusted principal or original principal, whichever is greater. Interest is paid semiannually at a fixed rate.
Commodity Mutual Funds: Like gold, the price of commodities tends to increase during inflation. Think of the corn and wheat that go into a box of cereal. The rising cost of raw materials tends to increase the price of the finished product. Many mutual funds invest in agricultural and energy commodities that can potentially benefit from higher commodity prices.
Equities / Equity Mutual Funds: Companies in inflationary-sensitive sectors such as industrials and materials can potentially benefit in a higher inflation environment. If a company’s activity is producing a commodity, inflation could potentially improve the company’s bottom line. Specialty mutual funds offer such underlying equities within the fund's portfolio.
Real Estate / REITs: Real Estate rentals and values increase when prices do. For REITs, the dividends are an attractive benefit. According to Nareit, REIT dividends have outpaced inflation as measured by the Consumer Price Index in all but two of the last twenty years.
If inflation is a concern, feel free to reach out to me. I’m happy to listen and discuss how you can best tailor your individual investments to weather inflation’s impact in 2022.
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