Inflation is all over the news: it’s a scary subject encouraging you to read more headlines. But how should you actually prepare your investment portfolio for potential inflation? As always: it comes down to planning.
If you have a well-diversified portfolio of stocks and bonds then there’s good news: you can do nothing. Be ready to make adjustments as those investments go up or down, as you typically rebalance.
There are two potential action items below, but first let’s consider:
- Gold: It’s not a given that gold does well in inflationary environments. I don’t typically recommend gold because its long-term returns are fairly average and well below stock returns.
- Crypto: Is this the new “store of value” and replacing gold? Not with all the current volatility.
- Commodities: They typically will rise ahead of inflation, and we’ve seen that over the last 12 months. Will they continue to climb? Unknown.
- Real Estate: Your home is a great investment during inflation periods because you have a fixed-rate mortgage where dollars are worth less in the future. REITs and rental properties might increase in value or not, depending on increasing rents which are not always guaranteed with inflation
Two areas to consider making changes:
- Refinance your Mortgage: If you can borrow more or refinance at today’s low-interest rates, that could be a good idea when inflation kicks in. The fixed dollars that you pay back 5 years from now will be worth less than they are today.
- Short-Term Bonds: If rates rise, as is often the case during inflationary periods, then bond prices will fall. Stick with short-duration bonds that get reinvested more often.
Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/
