Protecting your investments from inflation
From the standpoint of history and inflationary cycles, you should already be planning on protecting your investment portfolio from this. Educating yourself so that you gain a basic understanding of both good and bad inflation cycles is your best first move. It is also the best move that you can make in order to create other investments to protect your current ones in your portfolio.
How to hedge against inflation with your investments
Given the current economic state that the world is in, most people will go to great lengths in order to protect their investments from inflationary trends. Unfortunately, the decisions that many investors make are not always the smartest ones. Here are 3 investments to consider should you want to protect your investment portfolio:
Corporate Inflation-Adjusted Bonds – this is one of the most recommended ways of hedging against inflation and is considered a better option rather than investing in TIPS (see the section below). Marilyn Cohen, the Forbes.com Bond Guru, stated in an article that corporate inflation-adjusted bonds are 0.4 percentage points higher than “A” rated US Treasury bonds. Additionally, since the risk factor is small enough, these types of bonds are highly recommended by numerous financial planners and investment analysts.
Real Estate Investment Trusts (REIT) – REIT’s are pronounced “reets” and operate under the same premise that the value of commercial property rentals and leases typically increase when inflation is on the rise. These are companies that collect commercial property rental and/or lease payments. In addition to this, if you combine REIT’s with ETF’s (Exchange Traded Funds) and mutual funds, these protect your investments extremely well against increasing inflation rates.
You should consider spending some time investigating and researching how REIT’s can help protect your investment portfolio against rising inflationary rates. Be thorough in your research, especially if you are considering doing any online investing. Another consideration is that you don’t want to sink all of your available investment funds in this one particular type of inflation-protected investment. REIT’s will still be a viable option for your investment portfolio and will ensure that your retirement nest egg does not get depleted despite what the economy may be doing.
Treasury Inflation-Protected Securities (TIPS) – these are types of US savings bonds that were first issued in 1997. As these bonds are issued by the US Government they are almost risk-free and highly rated for that reason. Despite what inflation is doing to the economy, it has no effect on the value of these securities. TIPS assure you that your investment’s values do not suffer as inflation rates increase.
Therefore, you are able to secure yourself against any financial loss when investing in these securities as well as avoiding a loss of financial power. Just keep in mind that as the value of the bonds increase, you are subject to more tax consequences. It is oftentimes recommended by financial planners that your portfolio should be comprised of 10% to 15% of these types of securities.