Recent forecasts from several economists and asset management firms suggest that the inflation rate could increase and surpass market expectations in the coming months. Improving economic growth and rising oil prices could lead to increased consumer goods prices and a broadening of the Fed’s economic financial policy.
Investors can protect themselves from increasing inflation by utilizing a few simple opportunities. These investment strategies involve investing in Treasury Inflation Protected Securities (TIPS), Emerging Markets, and U.S. Equities, specifically the healthcare and energy sectors.
TIPS are securities that are inflation protected by tying the principal with the Consumer Price Index (CPI), so it increases with inflation. At maturity, the U.S. Treasury pays the original or adjusted principal, whichever is greater. TIPS have returned 6.9 percent in 2016, and look to have their highest annual gain since 2012.
Oil is a driver of consumer prices and thus inflation. Most of the oil producing countries are emerging markets and are expected to rally as inflation increases. OPEC recently announced plans to cut production which will continue to increase the price of oil.
Rising prices can benefit certain sectors in which the price increase can be passed on to the consumer. Two of the best sectors for this are the healthcare and energy sectors. Even though energy stocks have taken a beating the past two years, with oils turn around and inflation showing signs of bottoming out, the energy sector was given a boost and has outperformed some major indices lately.
If you would like to know more about how rising inflation could impact your investments, and to ensure you are protected, please give one of our Wealth Management professionals a call.
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