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There are two sides to the inflation headlines circulating today’s news. The Federal Reserve believes this is temporary, while others claim we’re on the verge of a major shift in history. Learn more by reading the Wall Street Journal article below.
If you believe higher prices are here to stay, it’s important to consider how your retirement could be affected, and what strategies need to be put into play as a result. Here, you’ll find five approaches, as well as their biggest risks:
📌Gold – While this is typically the go-to answer to safeguard from inflation, the price of gold has actually fallen this year, while inflation doubled; Not to mention, it doesn’t perform as well as stocks and doesn’t provide an income
📌Commodities – Copper, oil, and lumber are all up this year; However, the issue with commodities is that they have to be bought through futures contracts, posing a danger of what traders call “contango” (prices are higher the further ahead the futures contract matures)
📌Stocks with low purchasing power – When prices everywhere rise, weaker companies can price more aggressively, which makes pricing power decrease; As a result, stocks in competitive sectors become more popular, but can also fall hard when we anticipate the end of inflation📌Treasury Inflated Protected Securities (TIPS) – While 10-year TIPS pay 0.9 percent below inflation, their repayment at maturity is tied directly to consumer prices
📌Assets with short duration – These rely on returns far in the future, and can be hit hard by inflationary fears. Those with fixed returns, such as bonds, can fare even worse
Bottom line: The keyword here is, “If.” There isn’t a crystal ball regarding what inflation will look like in the future, let alone which assets will perform the best in an inflationary environment. Take a diversified approach, and don’t forget about the value of real estate, and even cash, available for opportunities.