In our last blogpost, we discussed why inflation is something most investors should worry about, now we will discuss 4 inflation hedging tools -
1. Stocks
Stocks in theory could grow with inflation because the companies could raise prices, but in order to effectively use stocks to hedge against inflation, you need a portfolio of Large and Small caps stocks, and U.S. and International stocks. This allocation is especially important for retirees' portfolios because they tend to concentrate on large U.S. stocks only.
2. TIPS
Treasury Inflation Protected Securities (TIPS) have principals tied to inflation, therefore is a good inflation hedging tool. However, TIPS are not perfect, because they are vulnerable to rising rates - when rates rise, bond prices fall. To minimize such risk, choose a short-term TIPS fund such as Vanguard Short Term Inflation Protected Securities (VTIP).
3. Commodities
Commodities are good inflation hedgers because they tend to deliver superior returns in a high inflation environment. Choose a good commodities fund, for example, the Harbor Commodity Real Return Strategy fund (HACMX) offers both commodity and TIPS exposure. However, commodities are only effective for commodity-driven inflations.
4. A Balanced Fund
You can also choose a multi-asset inflation fighting fund, such as the Pimco All Asset (PASDX) which holds a mix of commodities, emerging markets stocks, and other assets.
1. Stocks
Stocks in theory could grow with inflation because the companies could raise prices, but in order to effectively use stocks to hedge against inflation, you need a portfolio of Large and Small caps stocks, and U.S. and International stocks. This allocation is especially important for retirees' portfolios because they tend to concentrate on large U.S. stocks only.
2. TIPS
Treasury Inflation Protected Securities (TIPS) have principals tied to inflation, therefore is a good inflation hedging tool. However, TIPS are not perfect, because they are vulnerable to rising rates - when rates rise, bond prices fall. To minimize such risk, choose a short-term TIPS fund such as Vanguard Short Term Inflation Protected Securities (VTIP).
3. Commodities
Commodities are good inflation hedgers because they tend to deliver superior returns in a high inflation environment. Choose a good commodities fund, for example, the Harbor Commodity Real Return Strategy fund (HACMX) offers both commodity and TIPS exposure. However, commodities are only effective for commodity-driven inflations.
4. A Balanced Fund
You can also choose a multi-asset inflation fighting fund, such as the Pimco All Asset (PASDX) which holds a mix of commodities, emerging markets stocks, and other assets.
RSS Feed
