Skip to main content

How to Protect Your Investments from Inflation (and Hopefully Laugh All the Way to the Bank)

Inflation is a reality that investors have to face and prepare for. By investing in assets that can outperform inflation and diversifying your portfolio across different asset classes, you can hedge against inflation and preserve your wealth. And hopefully, you can also have some fun along the way. Because investing doesn’t have to be boring or stressful. It can also be enjoyable and rewarding.

In this post I will share my opinion on what is commonly recommended and what I prefer to protect against Inflation.

Treasury Inflation-Protected Securities (TIPS)

There are some benefits to residing in a sound and free country. There is nothing I favor more than the profound impulsive behavior of the common person to spend their money on useless things in the pursuit of happiness. Some call that freewill, I view that as the base of our economy! Then there are Treasury Inflation Protection Securities. 

Treasury Inflation-Protected Securities (TIPS) are a type of government Bond that adjusts its principal and interest payments according to the changes in the Consumer Price Index (CPI), which measures inflation. TIPS offer a fixed real rate of return that is guaranteed by the U.S. government.

TIPS can protect your investments from inflation risk, as they ensure that your purchasing power is maintained over time. However, TIPS also have some drawbacks, such as low nominal yields (Adjusting overtime), interest rate risk, and Federal Tax implications. Investing in TIPS can be done through individual bonds, mutual funds, or ETFs.

I believe every parent should purchase Inflation Protected Treasury Bonds at regular intervals for their children. It is a solid base for many Investment Strategies, secure Savings, Tax Advantaged Interest (Especially if you live in NJ), and easily accessible funds (Internet seems to be a requirement).

ETF's and Treasury Direct provide access to Treasury Inflation Protection assets at lower rates. ETF's can be purchased through a Broker, like eTrade, using Automatic Investment Strategies. For example, an Investor could Invest $20 per week in an ETF. Alternatively, Savers can purchase I-Bonds at smaller Intervals through TreasuryDirect.Gov. Treasury Direct offers investment Intervals too. I suggest a monthly allotment. Children will be able to redeem portions of the I-Bonds in the Future, rather than redeeming the entire I-Bond.

    Some ETF's that offer exposure to TIPs (eTrade offers Automatic Investing):

  • VTIP (Vanguard Short-Term Inflation-Protected ETF - One of my Fav's)
  • TIP (iShares TIPS Bond ETF)
  • SCHP (Schwab U.S. TIPS ETF)
  • GTIP (Goldman Sachs Access Inflation Protected USD Bond ETF)

Diversification (Appropriate Position Sizing)


Another way to protect your wealth from inflation is to diversify your portfolio across different asset classes that have different responses to inflation. By doing so, you can reduce your overall risk and enhance your returns.

A well-diversified portfolio should include some exposure to Stocks, Bonds, Gold, Commodities, Real Estate, and TIPS/I-Bonds. The exact allocation will depend on your risk tolerance, time horizon, and investment objectives. You should also review your portfolio periodically and rebalance it as needed to maintain your desired asset mix. I believe it is very important to focus on the overall economy nationally and internationally, when making rebalancing decisions. As Interest rates are increasing, my favor shift towards short term Bonds, Brokered CD's, and stalwart Stocks surrounding energy and commodities that offer Tax Favorable Dividends.

Real Estate

Real estate is another asset class that can provide inflation protection. Real estate is a tangible asset that can generate income through Rents or Capital Appreciation through Price Appreciation. Real Estate, however, is also illiquid, expensive, and burdensome.

Investing in real estate can be done through Direct Ownership, Real Estate Investment Trusts (REITs), or Real Estate Mutual Funds or ETFs. But watch out, these vehicles can also have their own challenges, such as Taxes, Maintenance, Financing, and Management. Plus, you may end up dealing with tenants from hell, neighbors from hell, or landlords from hell.

I prefer Direct Ownership for my own (or Family) Housing needs. Purchasing a suitable Home is ideal and a solid foundation for yourself and/or your family. There is nothing more stabilizing than home ownership and that should be a priority.

As for Investment vehicles, I prefer REIT's (Stocks) and ETF's. I own four REITs. Dividends paid by my REITs have been Taxed as Ordinary Income. My Portfolio includes the following REITs:

  • CCI (CROWN CASTLE INC COMMON STOCK)
  • CUBE (CUBESMART)
  • NNN (NNN REIT INC COMMON STOCK)
  • OHI (OMEGA HEALTHCARE INVESTORS INC)
In addition, I also hold the following Stocks that are relative to Real Estate. As you can see from my selection, I favor services related to Individual Direct Ownership:

  • DHI (D R HORTON INC COM)
  • ETD (ETHAN ALLEN INTERIORS INC)
  • HD (HOME DEPOT)
  • KMI (Formerly a REIT - KINDER MORGAN)
  • LEN (LENNAR CORPORATION)
  • PHM (PULTE GROUP)
Lastly, I believe there are stable Financial Services surrounding Real Estate. Here are the ones I hold in my Portfolio:
  • BAC (BANK OF AMERICA)
  • CFG (CITIZENS FINANCIAL GROUP - with Subsidiary CFG Home Loans)
  • PNC (PNC FINL SVCS GROUP)
  • PNFP (PINNACLE FINL PARTNERS INC)
Inflation is the enemy of every investor. It’s the sneaky thief that steals your money while you’re not looking. It’s the annoying roommate that eats your food and uses your shampoo. It's the person living in your house that doesn't value what you've accumulated (Another way to define Kids). It’s the evil villain that laughs maniacally as it destroys your hard-earned wealth.

Often Recommended Inflation Hedges

Gold and Commodities. I don't favor those Investments. Oh, yeah, I once seen a young guy boasting Bitcoin. They literally had him on Bloomberg in a David Rubenstein Show Interview. In that interview he said Equities Markets, "have limited liquidity and access to size," when compared to Crypto!

There's my thoughts and opinions. In regard to those often recommended, I believe two are ideal for Money Laundering. Can you guess which two?
 
Labels:

Popular posts from this blog

How to Add Beneficiaries on E*TRADE Without Losing Your Mind

“Because your money should go where you want it, not where the probate court thinks it should, I am sharing this information.” Ah, E*TRADE. The place where your money grows, your trades execute (sometimes), and your hopes for financial freedom flutter like a candlestick chart on a volatile Thursday. But what happens if you kick the bucket before you get that Tesla stock to moon? Simple: you assign a beneficiary. Unfortunately, E*TRADE doesn’t make this as intuitive as you might think. This isn’t a “click here and boom, you’re immortal” situation. But fear not, fellow capitalist. I’ve braved the pixelated jungle so you don’t have to. 🛠️ Step-by-Step: Setting a Beneficiary for Your E*TRADE Brokerage Account (aka “How to ensure your money doesn’t end up in your ex’s lap or your neighbor's GoFundMe”) Log in at etrade.com . (Obvious, yes. But worth saying—this isn’t Webkinz, you need the real site.) At the top, click “Accounts” and select your Brokerage Account . (The on...
Read more

NJ's Middle-Class Squeeze: Too Much for Help, Not Enough for Comfort

This is a long post — longer than what I usually write — because what I’m talking about here isn’t a small annoyance or a passing frustration. It’s something that has been building for years, and I’m finally putting it all into words. I’m upset, I’m exhausted, and I’m passionate about what follows, because it affects every working person in this state who’s trying to stay afloat. There’s a growing group in New Jersey — people who work full‑time, sometimes more than one job, who earn too much to qualify for assistance but not enough to absorb the constant increases in living costs. These are the people tightening their budgets, lowering their thermostats, cutting back wherever they can, and still watching their bills rise for reasons that have nothing to do with their own usage or behavior. If you’re part of that group, or you know someone who is, then what follows will probably resonate with you. And if you’re not, then I hope this gives you a clearer picture of what the middle class i...
Read more

Understanding Treasury Bond Auctions: The Difference Between High Yield and Interest Rate

Treasury bonds are a popular choice for investors looking for a reliable source of income backed by the U.S. government. However, understanding how these bonds are priced at auction can be confusing, especially when comparing the High Yield and the Interest Rate (Coupon Rate) columns. In this post, I'll break it down using a real-world example.  A Look at a Recent Treasury Bond Auction Here’s an example of a 20-year Treasury bond that was recently auctioned: Security Term CUSIP Reopening Issue Date Maturity Date High Yield Interest Rate 20-Year 912810UF3 Yes 01/31/2025 11/15/2044 4.900% 4.625% What Do These Numbers Mean? CUSIP : This is a unique identifier for the bond. Reopening : Since it says "Yes," this means the bond was originally issued earlier and is now being reoffered. Issue Date : January 31, 2025—this is when the bond will be offi...
Read more