4 Assets You Should Have in Your Retirement Portfolio To Build Wealth as Inflation Remains High
Written by
Gabrielle Olya
Edited by
Levi Leidy
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Thanks to inflation, the value of the dollar continues to decrease over time. That’s why when you are investing for the long term, it’s important to invest in assets that hedge against the effects of inflation.
“Inflation presents a complicated set of interacting factors,” said Ben Leiser, a risk and regulatory consultant and co-author of a new Society of Actuaries report. “A range of assets can be considered during periods of inflation that include equities, bonds and TIPs, which vary in their purpose and levels of inflation protection.”
Here’s a look at why you should have these assets — plus real estate — in your investment portfolio to build wealth as inflation remains high.
Equities
Equities, aka stocks, are historically one of the most effective long-term inflation hedges.
“The underlying companies often have the ability to increase prices for their goods and services, thereby maintaining revenue streams that can outpace inflation,” the Society of Actuaries report stated. “Additionally, companies may possess the flexibility to adjust their operations in response to changing economic conditions.”
Equities can be volatile over the short term, but if you are investing for the long term in a retirement fund, their returns typically outpace inflation.
Bonds
Bonds are not typically thought of as an effective hedge against inflation, but they can be with the right strategy.
“If someone intentionally employed a strategy of purchasing short-term bonds with the expectation that interest rates would increase in response to inflation, thereby increasing the yield of the bonds,” that could hedge against inflation, the report stated.
Treasury Inflation-Protected Securities (TIPS)
As the name suggests, TIPS are designed to provide protection from inflation. The principal value and interest payments from TIPS both adjust with changes to the Consumer Price Index.
“This makes TIPS an attractive option for investors seeking a fixed-income instrument that adjusts with the changing economic landscape, providing a reliable defense against the erosive impact of inflation,” the report stated. “The attractiveness of TIPS as an investment depends on how users evaluate and view the tradeoff of inflation protection against potentially lower returns. Since their inception in the 1990s, TIPS have earned an average annual return of 4.0%.”
Real Estate
Both commercial and residential properties tend to increase in value over time. Plus, if your investment is a rental property, rents also tend to increase over time.
“Real estate investments can act as a hedge, as they are tied to physical assets that possess intrinsic value,” the report stated. “However, the effectiveness of real estate as an inflation hedge can vary based on factors such as location, property type and overall economic conditions.”
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