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How to protect your portfolio when inflation is on the rise?

ottawaman75

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Apr 6, 2007
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I have only been investing since post crash in 2008 and like most folks in these times I have done well but like the title say how to protect your portfolio when inflation is on the rise?
 

oil&gas

Well-known member
Apr 16, 2002
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Ghawar
If you have been doing well in the stock market what are you worrying
about your portfolio? I presume any happy stock investor must have
gained a yearly return of at least 10% which outweighs inflation by a
long shot. Stock market tend to correlate with inflation. If inflation is your
concern at least you don't have to worry about a repeat of the 2008 crash.
Hyperinflation on the other hand could destroy all your capital but we
are not there yet.
 

bankerboy80

Member
Jan 12, 2007
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I have only been investing since post crash in 2008 and like most folks in these times I have done well but like the title say how to protect your portfolio when inflation is on the rise?
One hedge would be buying a real return bond fund. Most bonds and subsequently bond funds lose value when interest rates rise which is in large part to curb inflation. This is because newly issued bonds will have a higher interest rate. Real return bonds do the opposite as they rise with the core inflation rate. IMHO it is a good idea to have some of your investment portfolio in these types of bonds. Another would be blue chip companies that reduced dividends during the financial crisis but are considered stable.
 
B

burt-oh-my!

I am not so sure about real return bonds being safe, at least if you are not holding them to maturity. Safe from a price decline I mean. They have had a hell of a run over the last ten years while inflation has remained low or gone down, so they could very well do the opposite when inflation ticks up. Remember, there are the mechanics of how their interest payments are calculated, but at the same time they are also traded, and can be driven up too high in price like any other financial asset.

Real strong inflation is nasty and hard to protect against. Especially if you are investing in a non-registered account, and are in a reasonably high tax bracket, you can be invested in an asset which keeps pace with inflation, but taxes take an increasingly large chunk of yur return,

Example: inflation is 2%, your return 2%. 40% tax bracket means you ar receiving 1,2% net of taxes, or minus 0.8% real.

Example: inflation 10%, your return 10%, 40% tax bracket means you are receiving 6% net of taxes, or -4% real.

I think the key is to borrow at a long-term fixed rate prior to the inflation ( as if that kind of timing is easy!) and invest in inflation-protected asstets.

Maybe the perfect inflation hedge would be a business which adjust its selling prices upwards with inflation, but some of their costs don't go up as much as inflation, maybe service industries which USE technology as one of their biggest costs.
 

GPIDEAL

Prolific User
Jun 27, 2010
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Burt, I remember years ago my dad locked into a segregated fund investment with one of the insurance companies that paid 11% for at least 2 years.

Your right about locking into a L-T rate prior to inflation but even banks now are paying crap for any of their long-term products.
 

duang

Active member
Apr 17, 2007
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I have only been investing since post crash in 2008 and like most folks in these times I have done well but like the title say how to protect your portfolio when inflation is on the rise?
Invest in a well diversified equity portfolio and if you make sure you have resource investments you should be protected against inflation since long term inflation is usually accompanied by commodities and resources booming.

If you own equities [and especially with resources] then inflation will push up your portfolio and protect your purchasing power. Being stuck in fixed income exposes you to inflation risk but equities will largely take that risk away.

D.
 

choco keke

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May 18, 2011
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I'd think that large cap companies with pricing power can hedge against inflation (such as utility companies, large pharma, AZN, SNY, BMY, PFE). If the company can adjust their product or service price along with inflation, then they should be able maintain profit margin. People still need their meds; it'd be one of the last things to cutoff.

Real estate, depending on the location and purchase price. Before the bubble, this asset class had returns comparable to the rate of inflation.
 
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