Friday , 21 January 2022

Here’s How To Position Your Portfolio For Coming Inflation

…Inflation expectations for the U.S. are at their highest in a decade…Here is how to position your portfolio for inflation.

Inflation Move #1: Sell Bonds for Cash

…If you’re worried about inflation picking up, the simplest move you can take to protect your portfolio is to drop bonds and swap them for cash. Cash serves a similar role to bonds in the portfolio, and cash won’t lose you money if yields rise. Cash surprisingly outperformed stocks and bonds during the inflationary 1970s…

Inflation Move #2: Invest in Gold, Silver, and Commodities

Investing in commodities is another classic move for inflation…During inflation spikes…gold, and commodities like oil, have performed well.

…Gold can safely be invested in via the iShares ETF (IAU) or SPDR ETF (GLD). Silver can safely be invested in via its iShares ETF (SLV). To invest in energy, I’d recommend investing in energy stocks directly since they pay dividends and are leveraged to the price of oil and natural gas. One good energy play is Vanguard’s Energy ETF (VDE).

Inflation Move #3: Pick Your Stocks Carefully

…Inflation redistributes wealth…[and] this is good for some groups of stocks and bad for others. [Below is]…a handy chart from Goldman Sachs about which stocks perform best in inflation and rising yields.

Source: Federal Reserve Bank via Goldman Sachs Asset Management

The best-performing stocks during inflation tend to be energy stocks and financials. The worst-performing stocks tend to be real estate, utilities, and consumer staples...The stock market as a whole may not do very well in inflation, but if you choose your stocks right or buy at good prices, you can do quite well.

Conclusion

[Buffett said in a] 1977 Fortune article…[that]…”stocks are probably still the best of all the poor alternatives in an era of inflation – at least they are if you buy in at appropriate prices.”

Editor’s Note:  The original article has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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