How To Adjust Your Investment Portfolio To Account for Inflation

Close-up photo of a woman using a smart phone app to track her financial portfolio.
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As Americans continue to grapple with high inflation rates, many are looking for ways to offset the increasing costs. One possibility could be to adjust your investment portfolio — but is this actually necessary? And if so, what adjustments should you be making?

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To find out, GOBankingRates spoke with Amy Richardson, CFP with Schwab Intelligent Portfolios Premium. Here’s what she had to say.

First, Think About How Inflation Is Affecting You Personally

Although inflation is affecting everybody, some people are feeling the crunch more than others.

“We know that inflation is high right now, we see that in the headlines, but it’s finding out, how does that apply to my personal financial situation? It’s finding a way to understand what is happening in the bigger economy and really how that impacts you,” Richardson said.

It’s also important to maintain a long-term view, especially when thinking about your investment strategy.

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“This is something that we’re experiencing today, but it’s not going to be something that’s here for the next 10, 15, 30 years when you think about saving for your future or other types of goals,” Richardson said. “There’s something to be said about sometimes ignoring the noise. It’s important to understand it and be educated and aware, but then understand how that’s going to impact your personal situation, so you can focus on the things that you can control.”

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Put More Money Into Long-Term Saving and Investing If You Can

One way you can take control in an inflationary environment is to focus on saving and investing more, if possible.

“If you can save more, great,” Richardson said. “It’s always a good time to save more, it’s always a good time to invest in the market because of that long timeframe. That’s always something that I would encourage people to do because it just helps you to be in a better place in the future. It helps you achieve that financial freedom or whatever goal it is that you’re working towards.”

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If You Can’t Save More, Focus on Maintaining Your Contribution Rate

Many Americans may not be in the position to save more, as inflation is stretching their budgets even more than usual. In this case, Richardson said to try to maintain your retirement savings contribution rate rather than decrease or pause contributions.

“If you’re able to maintain your savings, that is also a win,” she said. “I don’t want people to come down on themselves if they can’t increase their savings right now. I think this [high level of inflation] isn’t going to be here forever, so if you can maintain right now and you’re continuing to save for your future, that’s something you should be proud of as well.”

Make Sure Your Portfolio Is Diversified and Reflective of Your Risk Tolerance

Rather than focusing on specific asset classes or sectors to offset inflation, Richardson said that it’s most important to ensure that your portfolio is well diversified.

“None of us have a crystal ball, and I can’t say that this is going to be a best-performing asset class,” she said. “But if I’m diversified, that really puts me in the best position to ride out some of the volatility in a more even-keeled way. We’re not going to have quite the highs or lows.”

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In addition to being a smart investment strategy for long-term gains, being diversified also makes you less likely to make rash investment decisions.

“As investors, we tend to be emotional,” Richardson said. “The worst thing we can do is go, ‘Oh man, I thought this asset was going to be a home run and now I’m going to sell out.’ If you had just diversified instead of being whipped around by various asset classes and stayed invested, that strategy tends to have greater outcomes than trying to time the market, or pick that home-run asset class or sector or stock.”

In addition to ensuring that your portfolio is diverse, you should check in to make sure that it’s in line with your risk tolerance.

“Maybe you haven’t checked it out in a while and you never rebalanced,” Richardson said. “Maybe, for example, your risk tolerance was 50% stocks and 50% bonds, [but now you’d prefer] a 70/30 mix. If that changed, then you’re also going to be uncomfortable and more emotionally charged to make decisions that aren’t in your greatest interest.”

Since you can’t predict the future of inflation, Richardson emphasizes that it’s important to focus on what you can control — risk tolerance, rebalancing and diversification

“Know that over the long term, markets go through cycles,” she said.

Do Your Research and Seek Help If You Need It

If you’re still worried about how inflation will affect your investments, you may utilize online tools to help you make the best decisions for your unique situation. And if you need professional advice, don’t hesitate to seek it out.

“I love to encourage people to spend the time, ask questions and reach out to the experts to help you navigate [your investing decisions],” Richardson said. “When you have questions and when you’re experiencing things like inflation, reach out to an expert to help you navigate this. The peace of mind that that offers is worth its weight in gold.”

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 
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