Key Takeaways
- Diversify across asset classes to mitigate inflation risk.
- Treasury Inflation-Protected Securities (TIPS) and real assets are often considered as potential inflation hedges.
- Regular reviews and portfolio rebalancing help ensure strategic alignment.
6 Tips to Help Preserve and Grow the Value of Your Investments
Inflation has been in the news a lot lately. The high inflation rates of the last several years have significantly eroded Americans’ purchasing power on a variety of goods and services. While inflation puts a strain on short-term spending and saving, it can be especially detrimental to long-term investment accounts if not properly planned for. Fortunately, a well-built investment portfolio can help counteract the effects of inflation. The following tips can help preserve and grow the value of your investments in the face of inflation.
Diversify asset classes
One of the most effective ways to position your portfolio to weather inflation is by investing in a diversified mix of asset types, such as stocks, bonds, real estate and commodities. Different asset classes tend to perform differently during various stages of the market cycle. By maintaining a diversified portfolio, you reduce the risk of all your investments being impacted in the same manner at the same time.
Leverage equity investments
Historically, equity returns have outperformed inflation over the long term. Investing in a diversified mix of large- and small-cap stocks, both domestic and international, can help provide you with the long-term growth potential you need to offset rising inflation and protect your portfolio’s purchasing power. By owning stocks, you own the companies raising the prices causing inflation.
Use Treasury Inflation-Protected Securities (TIPS)
Consider incorporating an allocation to inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS). TIPS are government bonds that change value based on the Consumer Price Index (CPI) that can provide a hedge against inflation. They offer fixed interest payments that can help your investment keep pace with rising prices.
Add real assets and commodities
Tangible assets, such as real estate and commodities, have historically helped hedge portfolios against inflation. Real estate investments have the potential to appreciate in value and generate rental income, which can rise with inflation rates. Commodities tend to retain value during inflationary periods.
Rebalance your portfolio regularly
When planning for inflation, it’s important to regularly rebalance your investment portfolio. Rebalancing is the process of selling off outperforming assets in order to invest in lower-performing assets. While this practice may seem counterintuitive, it helps prevent your allocation from drifting too far from your target investment ranges. Adding to a lower-performing asset can be difficult, but it’s important to remember the reasons it’s in the portfolio in the first place. This practice helps offset inflation because it prevents one asset type from dominating your portfolio and throwing off your risk exposure.
Review and adapt your investment strategy
Periods of high inflation often coincide with challenging market conditions. Economic factors are constantly changing and evolving, so it’s important to regularly review your investment portfolio. This practice is designed to help manage your portfolio in a way that aligns with your goals and prepares it for potential economic changes.
Get Professional Help With Your Portfolio
Could you use some help making sure your investment portfolio is well positioned to outpace inflation? The teams at Creative Planning are here for you. We specialize in helping our clients financially prepare for challenging economic times, whenever they may surface. To learn more, schedule a call with a member of our team.
