| How to invest smartly when inflation picks up | | |  | WED, MAY 26, 2021 | | | | "We are seeing very substantial inflation," said Warren Buffett at Berkshire Hathaway's recent shareholder meeting.
Indeed, inflation is all the market seems to care about these days and therefore has been on top of everyone's minds.
Wages are rising and consumer prices are surging, so what's a worried investor to do? Investors find themselves scrambling for solutions as they seek an inflation hedge to protect their portfolios from the emerging threat.
"It's hard to say if inflation is a primary concern right now, but there's a strong case to be made that inflation could continue to tick higher over the next several years as the economy heats up," said certified financial planner Douglas Boneparth. "So I wouldn't discount anyone's concerns."
Investors do have some options to protect their money and even take advantage of the current environment, financial advisors say. Because an interest rate hike by the Fed might be in store, advisors recommend that investors avoid tying up too much money now in any long-term bonds or certificates of deposits. Doing so could mean missing out on higher rates later.
Advisors also urge investors to focus on short- to intermediate-term bonds and avoid any investments that have "long-term" in the name. Investors may also want to stay away from growth stocks, or companies with higher-than-average expected earnings. Other inflation hedges include investing in real estate, gold and even cryptocurrencies, advisors say.
Meanwhile, if you're retired and worried about inflation's impact on your portfolio, one strategy could be to invest in Treasury inflation-protected securities, or TIPS. Like typical Treasury bonds, they are issued and backed by the U.S. government — which makes them a generally safe investment. However, they operate a bit differently. And depending on how you use them, they can help protect your purchasing power.
One advisor says he uses TIPS for short-term needs — up to about three years.
"You have safety and protection of your principal," said CFP Clark Kendall. "But I don't think TIPS are good long-term … for maintaining purchasing power."
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