Inflation Protection for your portfolio.

Inflation protection is a concern for just about everyone who has retired or is on a fixed income.  Gold and other precious metals has been popular for years, however the price of gold has dropped sharply as some major investors have bailed out of the precious metal.

What are some of the alternatives?  According to an article in the Wall Street Journal, there is danger that at some point higher inflation could be sparked by the flood of money being pumped into economies around the world by central banks in their effort to spur growth.  So what are some experts recommending?

TIPS, or Treasury Inflation Protected Securities, were introduced to offset the effects of inflation.  The problem is that “inflation” is a general rise in prices while certain things that everybody needs like food and fuel can rise sharply while the more broadly based measure of inflation stays low. One example is the doubling in the price of gasoline in the last 5 years while official “inflation” is practically zero.   In addition, TIPS can be overpriced and expose the investor to loss of principal.

Another alternative is an inflation protected annuity, which has the same problem as TIPS, plus the other problems that annuities have for the unwary.  Real estate is still another option, either through direct purchase or via REITs (Real Estate Investment Trusts).

Interestingly enough, stocks are a great long-term hedge against inflation.  Companies can raise their product prices, which keeps their profit margins up in inflationary times.   This can keep stock prices ahead of inflation. In addition, many stocks pay dividends and have been raising their dividends in the last few years.  So they offer both income and growth.  However, investors should avoid reaching for dividend yields that are not sustainable, exposing their investments to unexpected losses,

If inflation is your concern, call us for a consultation.

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