Protecting Investment Portfolios from Inflation
In a recent article in Business Week, economist David Rosenburg, predicts that during the next decade, the U.S. economy will be facing a period of inflation reminiscent of the last inflationary cycle in 2003 and 2004. Rosenburg declares that as “the economy does better, inflationary pressures follow” and eventually, the Fed will have to raise interest rates.
But there are things investors can do now to prepare and potentially hedge this possible inflation.
Now could be the time to diversify a stock or bond-heavy portfolio and look into real assets. Stocks and bonds are heavily impacted by inflation and increases in interest rates. When inflation or interest rates rise, the price of bonds, as well as their purchasing power, decreases. Real asset investments, on the other hand, have historically provided attractive returns during inflationary times when traditional stocks and bonds have performed poorly. Real Assets can benefit from rising input prices, offering purchasing power protection to investors and acting as an insurance policy against the effects of inflation.
Not everyone is jumping on board with Rosenburg’s prediction and only time will tell if his forecast is correct or not. But it may still be a good time to re-examine current investment decisions and look at other opportunities.