BY KRISTIN HOVENCAMP
If “everyone” is saying that inflation is a concern, chances are you will begin to worry about inflation. Repetition does not make it so. There are many sides to the inflation debate, leaving investors with an unclear picture. Federal Reserve Chairman Jerome Powell views current inflation as “transitory.” Berkshire Hathaway founder Warren Buffett sees “substantial inflation.” Harvard University economist and former U.S. Treasury Secretary Larry Summers recently argued that the Fed is setting a “dangerous complacency” tone over inflation. While economists and investors continue to pontificate about the implications of inflation, fearing it will not solve anything.
You can never fully insulate your portfolio against the risk of rising inflation. However, you can invest in assets that having purchasing power and perform better during inflationary periods.
- Equities. Owning quality dividend-paying stocks can help protect income-focused investors. Consider investing in companies that have pricing power and the ability to increase cash flows.
- Fixed Income. Short-dated U.S. government securities protect purchasing power. Inflation-protected bonds are designed so bond payouts increase with inflation—for example, Treasuries and Treasury Inflated Protected Securities (TIPS).
- Commodities. If we experience a weakening dollar, the value of gold, copper, and other metals should increase. Similarly, if growers raise the price of soybeans, markets will charge more for products that are made with soybeans.
- Real Estate. Hard assets such as real estate tend to maintain their pricing power. If the price of residential real estate goes up, then the cost of rent goes up, allowing it to maintain its value.
Inflation is a real risk that can impact all assets at varying times. Pockets of inflation exist, and we may experience periods of inflation, but that does not mean long-term inflation has arrived. Investments that have pricing power or protect purchasing power may help mitigate portfolio risk during times of perceived or real inflation.
Kristin Hovencamp is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dividends are not guaranteed and must be authorized by the company’s board of directors. Past performance may not be indicative of future results. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340, (208) 726-0605. HazlettWealthManagement.com
