While there are a number of relatively complex strategies sophisticated investors use to counter the effects of inflation, here are five of the most common: However, during that period and the occasional milder inflationary periods since, a number of inflation-hedging tools and approaches have been developed. Inflation hasn’t been a critical concern since the 1970s, when a sustained period of high inflation devastated the economy, the stock market and consumers’ pocketbooks. If the prevailing sentiment has been that inflation is on the way, the prices of securities can be counted on to already reflect that. So these inflation hedges are most useful when unexpected inflation occurs. This means that, as a rule, expectations of future inflation are already factored in to prices for stocks and bonds, including inflation hedges. Participants in the securities market are highly sensitive to forecasts of changes in inflation. The result can make it harder for consumers and businesses to reach their financial goals and to preserve their existing wealth. However, when the inflation rate as measured by the consumer price index (CPI) rises above the 2% rate favored by federal policymakers, it can indicate that inflation is getting out of control. Mild inflation is generally seen as beneficial and helping to contribute to economic growth. The opposite of inflation is deflation, when prices become lower across a range of goods and services. When prices inflate you need more money to buy the same things. Inflation is the increase in the prices of goods and services across an economy. Consider working with a financial advisor to boost your portfolio’s protection from inflation. Special-purpose vehicles such as Treasury Inflation-Protected Securities (TIPS) also can play an important role. Many investing experts recommend strategies involving a mix of equities, short-term fixed-income investments and holdings related to commodities and real estate. Inflation-hedging strategies try to counter the wealth-eroding effects of inflation by selecting investments that can potentially counter the effects of inflation. When prices rise rapidly and persistently during an inflationary spiral, dollars lose purchasing power and investors can see the value of their portfolios decline.
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