Surely you have not missed the talks about inflation the past year. Even from the Fed and Yellen, the sentiment about inflation has changed from “not a problem” to “transitory” to “longer than first expected” and now to “good for the economy”.
While the price of risk assets, such as stocks, may also inflate due to the rise in inflation, they are not rising as much in real terms.
Rising inflation, and especially inflation that is higher than expected, is harmful to most common portfolios that comprise of stocks, or a combination of the two like the 60/40 Portfolio. Both stock and bonds are assets that perform well in times of low or decreasing inflation, and will lag in times when inflation rises.
It is thus vital to have a portfolio which also includes inflation hedges to mitigate the risk of unexpected inflation prints.
In this post, we will be looking at different types of inflation - as inflation can manifest in different ways - and how you can protect your wealth against each of them with different assets.