Greg Madison: Inflation can be tough to contend with, yet investors should guard against inflation lest it eat away at their portfolios – which isn’t hard to do if they know the best investments to hold when inflation rates rise.
Official interest rates are notoriously unreliable – outright false at times – which can downplay or underestimate the situation. Don’t trust the numbers. Make that mistake, and your investments’ value can evaporate before your eyes.
On the other hand, overestimating inflation can have negative consequences, too. Overestimating inflation hedges, or any hedge for that matter, can, slowly but surely, eat away at valuable yield.
You need to hedge your portfolio against rising interest rates right now. To do otherwise is to invite slow death for your core holdings.
That’s the bad news.
Fortunately, there are several investments and techniques available that can maximize protection while minimizing downside. The anti-inflation arsenal is diverse and full of weapons to suit nearly any investor’s risk tolerance, philosophy, and available capital. These constitute some of the very best investments for a rising interest rate environment.
That’s the good news.
The U.S. Bureau of Labor and Statistics, using the seasonally adjusted Consumer Price Index, pegged inflation at 2% in July of 2013. But the American Institute for Economic Research has its own “Everyday Price Index,” which is not seasonally adjusted and counts more items that most Americans buy on a weekly or monthly basis. In other words, the Institute’s EPI is considerably better grounded in reality that the government’s CPI.
The Institute has said that “inflationary pressures continue to mount as they have for months,” and that “these pressures are coming closer to breaking out into the wider economy.” The Institute’s EPI has broadly been trending upward for the past three months. The EPI has increased by more than 6% - at an annualized rate.
Even the official number is creeping up, albeit slowly. The U.S. Federal Reserve‘s massively easy money policy continues to pump money into banks’ reserves, which have grown by 48% since mid-May. Interest rates cannot continue to be kept artificially low, no matter how much the Fed tries to pretend the economy isn’t growing. It’s impossible to pump $2.3 trillion into the money supply and not see some inflation, even if 80% of it is going right into bank reserves.
Whether one uses the fantastical official figure or the real street-level numbers, inflation is going to be a force to reckon with.
Here’s what to do about it.
Best Investments for Rising Interest Rates
One of the easiest ways to hedge against inflation and grow your portfolio is to select the best stocks, those with “inflation-proof” earnings.” Naturally, these would be companies or even entire sectors that can hold their own in times of inflation. These are often the best investments in any environment.(...)Click here to continue reading the original ETFDailyNews.com article: The Best Investments For Rising RatesYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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