AllianceBernstein recently published an article, Is Your Portfolio Prepared for Inflation?
“It’s been a long time since investors have had to worry about inflation. But a strong economic rebound from the pandemic could trigger higher inflation, requiring investors to think about portfolio adjustments and to reconsider some asset classes shunned over the last decade.”
The article highlights three great strategies for investors building portfolios with potential inflationary shocks on the horizon:
- Own real assets such a real estate; REITs are a great alternative here.
“Real assets, with their value tied to underlying physical assets, have historically performed well in rising inflation. Real assets tend to be closely linked to economic inputs — labor, capital and materials — and as their prices increase, the value of real assets tends to also rise. We believe a diversified basket of real assets will provide the best risk/return trade-off and inflation defense.”
- Purchase stocks in firms that have high pricing power — the ability to raise prices without losing out on customers.
“Growth companies with sustainable business models, consistently high profitability and relatively attractive valuations will be better positioned for an inflationary outbreak.”
- Own inflation-adjusted bonds.
“Treasury inflation-protected securities (TIPS) and similar inflation-linked bonds globally will outperform comparable-maturity Treasury bonds if inflation increases more than expected. Consider reorienting your portfolio to be more defensive against inflation while still capturing income and yield.”
For retirees, bond-heavy portfolios need to be evaluated against your spending needs. Getting out in front of inflation now can be the difference between running out of money and being just fine, and “With some prudent adjustments, investors can prepare for a moderately inflationary environment and position portfolios to prosper as the pandemic recovery progresses.”
Wealth Advisor at Bernstein Private Wealth Management
Read the original article, by Ronit Walny, David Wong, and Mark Gleason.
Is Your Portfolio Prepared for Inflation?
For example, with higher discount rates, stocks of hypergrowth companies valued on earnings expected in 7-10 years…