One of our latest videos "Rising Inflation in 2021" inspired a great question from a viewer that we are addressing in this video blog!
"Is inflation typically bad for certain investment types and good for others?”
Our team started researching this when stimulus checks began putting more money into the hands of investors last year. We wanted to prepare in case inflation rose. We learned that "real assets" and short-term bonds perform the best during times of high inflation. Examples of real assets are land, barrels of oil, and other natural resources.
In comparison, stocks and long-term bonds can take a longer amount of time to adjust for inflation. This is due to reduced demand because of higher prices. Even so, some industries can pass inflation costs almost immediately to consumers. An example is a category called "non-durable goods." This category includes everyday items we cannot live without such as: food, utilities, toilet paper, fuel and other necessities.
On the bond side of portfolios, we favor short-term bonds in times of inflation. These allow us to monitor inflationary trends and continually reinvest bonds as interest rates go up. If our money is locked up in a long-term bond, we would not have the opportunity to reinvest at a higher rate for a long time.
If you are TimeWise client, we have already worked to ensure that you have asset allocation built in to weather inflation. But please note that asset allocation does not guarantee better performance and cannot eliminate risk of investment losses. If you have questions, please give our office a call!
If you are a not a client of ours and have outside assets, please give us a call so that we can see how well prepared you are to weather any potential inflationary storms.
Check out Kate's video "Rising Inflation in 2021": https://www.youtube.com/watch?v=itkxQRVoQ6A&t=3s