Inflation protection is a hot topic now. If above average inflation is here to stay, there are a few things investors should considered. People tend to think of TIPS, commodities, gold, and real estate when considering protection against inflation. Historically these don’t always act as an inflation hedge especially in the long-term. Investors should focus on assets that should perform well in the long run. So, we are telling our clients to keep the appropriate equity to debt allocation that fits their values, goals, and risk tolerance. Reducing the duration of bonds in the portfolio and having tilts toward value stocks, consumer staples, and utilities tend to whether inflation better than say growth stocks. You also should rebalance your portfolio to keep the appropriate allocation. Boring maybe but it has worked well in the past.
The one caveat here might be for investors that are about to retire. They might not have the ability or constitution to think in the long-term because they are or are going to start selling their portfolio to fund lifestyle. These investors should carve out the money they need in the next 1-3 years (short-term bucket) and invest in products that keep up with inflation like TIPS, T-Bills and other Short-term bonds. Investments that keep up with inflation and are liquid can give investors the comfort in the short-term and allow them to fund their life style.