Inflation is in the News

Inflation is in the news. 

The Consumer Price Index and the Producer Price Index were reported for the month of August, and both showed an acceleration in pricing. And today, the United Auto Workers Union went out on strike, bringing up more apprehension about inflation accelerating. So what's an investor to do? Well, I have some good news, and that is that a portion of your assets are likely to already be natural inflationary hedges. Well, what am I talking about? I'm talking about, first of all, your home. If you are a homeowner, you likely finance the purchase of your home with long term, locked in borrowings, a 30 year mortgage, where your monthly principal and interest payments are locked in over time, whereas the value of your home isnAnd in an inflationary environment, Your home value is likely to increase. The same is true for your stock holdings. Over time, equity values historically have been shown to appreciate and This appreciation can act as a hedge against the increase in inflation that we're currently experiencing. Now, it is true that your bond holdings, your fixed income holdings, are vulnerable to an inflationary environment.

Because as interest rates increase, bond prices go down. There are, however, Some ways to hedge even your fixed income portfolio. You can buy I bonds, which are bonds that have a low coupon rate, but a portion of the coupon rate is adjusted for inflation every six months. You can also purchase tips treasury inflation protected securities. And finally, in your fixed income portfolio, you can do what I do for my clients, which is rather than buying fixed income funds, you can buy individual government bonds laddered in order to hold each bond until maturity. You will see the value mark down when you get your monthly statements, but the intention is to hold each bond to maturity when you will get a hundred cents on the dollar.

Do you have some more questions about your individual situation? Please reach out to me at www.trueabundanceadvisors.com, and I'd be happy to answer any questions about your specific situation. So go out there. And live your life on purpose.