December 6, 2021

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Investors are worried about inflation. What advisors are recommending

Francesco Carta fotografo | Moment | Getty Images

With inflation picking up faster than it has in more than three decades, investors are grappling with how to respond to the risk.

Rising prices mean that a portfolio’s returns don’t mean as much, a reality that can hit retirees especially hard since they depend on their investments to pay their bills. Younger people, of course, still have their wages to rely on.

Investments to avoid amid inflation

“Growth stocks tend to perform worse because they expect to earn the bulk of their cash flow in the future,” Doll said. “And as inflation increases, those future cash flows are worth less.”

What you don’t want to do, however, is panic and pull too much of your money out of the market.

The average annual yield on stocks was around 11% between 1900 and 2017, according to calculations by Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore.

Even after subtracting the cost of inflation, that return remained a handsome 8%.

Profiting from rising prices

Another good match for investors worried about inflation are Treasury inflation-protected securities, or TIPS, said CFP Nicholas Scheibner, a wealth management advisor at Baron Financial Group in Fair Lawn, New Jersey.

These securities carry a similar risk as other fixed income investments, but they add an adjusted principal amount if inflation increases.

Other possible hedges to inflation include investing in real estate, gold and even cryptocurrencies, advisors say.

“Real estate performs well because landlords and property owners see the values of their properties increase,” Doll said. “Also landlords can somewhat easily pass-through rent increases.”

The argument for investing in cryptocurrencies or gold amid inflation is that those assets are not damaged by the eroding value of cash. However, both are highly volatile and generally shouldn’t make up more than 5% of your portfolio, experts warn.

https://www.cnbc.com/2021/10/29/investors-are-worried-about-inflation-what-advisors-are-recommending.html