Inflation, Pros and Cons of Investing.
The primary benefit of investing during inflation, of course, is to preserve your portfolio’s value.
The second reason is that you want to keep your nest egg growing. It can also lead you to diversity which is always worth considering. Spreading the risk across a variety of holdings is a time-honored method of portfolio construction that is as applicable to inflation-fighting strategies as it is to asset-growth strategies.
Pros
- Preserve portfolio worth
- Diversify holdings
- Maintain income’s buying power
Cons
- Increase exposure to risk
- Divert from long-term goals
- Overweight portfolio in some classes
Sector To Avoid During Inflation
Not every equity sector performs equally well during inflationary periods. Here are 3 industries that have historically underperformed while inflation rises.
- Consumer discretionary
- Industrials
- Materials
Positioning portfolios for long-term inflation risk
Real assets (real estate, infrastructure, commodities and resource equities).
The economic drivers of real assets are often directly or indirectly tied to inflationary trends; this linkage historically has resulted in outsized returns when inflation exceeds expectations. An allocation to real assets may therefore help to preserve future purchasing power, potentially offsetting the vulnerability to unexpected inflation that is historically common to traditional portfolios of stocks and bonds.
