5 Ways to Protect Against Inflation

San Francisco, CA (Jan 30, 2024)  —

Do you remember what year it was that a gallon of gas was $0.63? Depending on your age, you may or may not! Answer: The year was 1978.

When the costs of goods and services rise in an economy, inflation may be a part of that price increase. These inflationary forces can help create challenges. As savers see their purchasing power decrease, it can lead to less of a desire to save cash. People living on fixed incomes can be especially impacted. Fortunately, there are ways to protect yourself against inflation. Here are five:

1. TIPS¹: Treasury Inflation-Protected Securities help provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. Interest is paid semiannually at a fixed rate.  TIPS can be held until maturity or sold prior to maturity on the second market, but you may receive less than the principal invested.
2. Precious Metals Funds²: Historically, the price of gold tends to increase during inflationary periods as the purchasing power of the dollar decreases. As it takes more dollars to buy an ounce of gold, the price tends to rise. How has the price of gold behaved lately? There are numerous precious metals funds that invest in gold and silver with some even including platinum and palladium in their holdings.
3. Commodity Mutual Funds³: Broadly speaking, the price of commodities tends to increase during periods of inflation. Think of the corn and wheat that go into a box of cereal —the rising cost of the raw materials tend to increase the price of the finished product. There are many mutual funds that invest in agricultural and energy commodities that can potentially benefit from an increase in underlying commodity prices.
4. Equities / Equity Mutual Funds: Companies that are 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 contribute to improving the company’s bottom line.  There are specialty mutual funds that offer such underlying equities within the fund’s portfolio.
5. Real Estate / REITs⁴: Real Estate Investment Trusts can help provide protection against inflation.  Real Estate rentals and values tend to increase when prices do. For REITs, the dividends can be a benefit. According to Nareit/October 2019, REIT dividends have outpaced inflation as measured by the Consumer Price Index in all but two of the last twenty years.
6. It is always wise to be proactive and have strategies at the ready when the possibility of inflation arrives. These assets, among others, can provide diversified methods of protection from eroding purchasing power due to inflation. Although, a diversified portfolio does not assure a profit or protect against loss in a declining market.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

Mutual funds are sold by a prospectus. Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact your Financial Professional to obtain a prospectus, which should be read carefully before investing or sending money.

If inflation is a concern of yours, please feel free to reach out to us. We would be delighted to discuss a personalized plan tailored to your individual investment objectives and situation.

1. Tips are purchased in multiples of $100, terms are 5, 10, and 30 years. TIPS can be sold on the secondary market, which are determined by supply and demand.

2. Precious metal funds can have volatile price fluctuations and initial costs can be high.

3. Commodity funds are not appropriate for all people.  Certain market conditions could contribute to a substantial risk of loss. You should consider the losses prior to making a purchase.

4. REIT funds hold Real Estate investment Trust in their portfolios which are subject to various risks such as liquidity and property devaluations based on adverse economic and real estate market conditions and may not be suitable for all investors. They are sensitive to interest rates, economic conditions (both nationally and locally), property tax rates, and other factors. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, economic or other developments.