“…inflation …. becomes the return hurdle that forces investors to take risk, be it in the fixed income market or, more commonly, through the equity market.”

Check out this full article from Forbes which discusses how your retirement fund can best defeat the ravages of inflation, citing some interesting information from HoyleCohen, 401(k) specialist, Derek Taddei and others in the industry.

Taddei:

“Typical retirement savers when it comes to 401(k)s don’t account for inflation,” says Derek S. Taddei, Relationship Manager, 401(k) Specialist at HoyleCohen, LLC in Phoenix. He finds this to be the case particularly for “those who decide to stay in money market funds because it is generally safe. They are expecting a 7% return on something that is returning below 1% in many cases. There are many strategies to hedge against inflation, one of those strategies would be to better manage, or avoid longer dated bonds, because if inflation pushes up longer-term bond yields, most longer dated bonds will lose money. Make sure you have the right allocation between growth and value, domestic and international stocks, as adjusting the stock allocation to sectors and industries positively impacted by inflation can be an opportunity.”

There are two aspects of bonds which can be troublesome during inflationary times. First, inflation erodes the real value of the fixed income generated by those bonds. Second, as Taddei mentions, the rising interest rates that accompany higher inflation causes the bond price to drop.

Disclaimer: This commentary is intended for informational purposes only. No decisions regarding investment strategies should be made based solely on this information and nothing shared should be interpreted as investment advice. Any investment decisions should be discussed with your Advisor. Finally, all investments carry the risk of loss, including the permanent loss of principal and past performance is not a guarantee of future results.