Navigating your investments through inflation periods

Federal Reserve Chairman Jerome Powell said this week that he does not intend to take any action to reverse the appropriate monetary policy course until inflation rises to a significant and stable level. He said while he expects inflation to rise as the economy opens, he sees it as a short-term rise in inflation that is likely to be temporary. The Fed is currently buying $ 120 billion a month in Treasurys and mortgage-backed securities, and reaffirms that they will continue this course soon.

With inflation as the main focus of Fed policy, it deserves more attention on how it affects the economy and how you can navigate through times of rising inflation. In this article we will talk about the effects of inflation and what can be done to counteract it.

Inflation is usually characterized by rising prices and reduced purchasing power of the dollar. Inflation can be both good and bad depending on the level. Hyperinflation or vice versa can hurt the economy, but inflation at a controlled and reasonable level can help the economy.

Inflation is usually a sign of a growing economy. It increases wages and helps stimulate economic growth. Higher inflation also discourages businesses and consumers from saving or scheduling money, and causes more incentive to spend or invest. In contrast, as economic growth begins to slow, there is less demand for goods sold and the rate of inflation generally declines.

Now that we know that we can expect rising inflation, let’s review some of the best ways to counter or defend against it.

· For the inflation-sensitive portion of fixed income, you should consider allocating a portion of your assets to inflation-protected securities (TIPS). TIPS are inflation-listed financial bonds based on the increase in the Consumer Price Index (CPI). The yield of TIPS is directly related to the rise of inflation, so when inflation goes up, so is the main pay and coupon from these securities.

· Spread low interest employment savings into the stock market. The theory behind this is that the success of a business is based on the fact that they earn a higher yield than their capital cost, and when businesses sell their goods at higher prices it leads to higher earnings, income -in and stock price.

· It may be wise to invest in physical assets such as land or buildings if the situation is self-evident. The value of land or a home usually rises with inflation. In addition, if you are planning to get a fixed rate mortgage, you may now be able to lock in a low rate and allow your investments to grow at a rate that may exceed your mortgage interest. .

While Fed Chairman Jerome Powell is adamant with a view to raising inflation above 2% for a sustained period before raising the Federal Reserve rate, there are many steps investors can take to ensure they are protected from increases. inflation. As always, remember to consult a financial professional before making major decisions, and see if any of these ideas are right for you.