Protect Your Investments from Inflation: 7 Strategies to Inflation-Proof Your Portfolio

According to the latest data from the U.S. Labor Department, the annual inflation rate for the 12 months ending in May was 2.4%, up 0.1% from the previous month. While this is still much lower than the rate at this time last year, many economists are concerned that President Donald Trump's tariff strategy may have a detrimental effect on inflation in the months ahead. However, there are several strategies that you can use to protect your portfolio from the effects of inflation. Here are seven recommendations from Fidelity on how to get ahead of inflation:

1. Stocks: While stocks can be negatively affected in the short term by sudden inflation increases or economic downturns, long-term equity investments have typically produced returns that are significantly higher than inflation. If you're invested for the long haul, don't rush to change your financial plan.
2. International Stocks: Investing in emerging foreign markets can help spread out a portfolio over-dependent on U.S. stocks, as home country bias is a global phenomenon. However, international stocks can be more volatile.
3. Treasury Inflation-Protected Securities (TIPS): TIPS are government bonds whose face value and interest rate payments rise and fall with inflation. They are available for five-, 10-, and 30-year terms, and at maturity, you'll get back either the original principal or an increased price based on inflation.
4. Gold: Although gold shouldn't occupy a significant part of your portfolio, it has a strong historical record as a broad inflation hedge in times of economic turmoil. However, it seems to perform best when inflation is significantly higher than it is now.
5. Commodities: Commodities (agriculture, energy, metals, etc.) have proved to be extremely resilient to inflation and have been an important hedge for stocks and bonds during periods of rising prices and wages. During inflation shocks, commodities returned real gains of 7 percentage points compared with a decline of 3 and 4 percentage points for stocks and bonds, respectively.
6. Real Estate: Like gold, real estate has proved to be a sought-after investment with significant protective and potentially lucrative value. Investing in income-generating real estate can increase your income as inflation and rents rise.
7. Floating-Rate Loans: Floating-rate loans can serve as a hedge against inflation because their interest rates vary along with current rates. This provides an edge over standard fixed-rate bonds, which typically see price losses as interest rates rise.

In conclusion, while inflation remains low at the moment, it's important to be prepared for potential changes in the future. By diversifying your portfolio with these strategies, you can protect your investments and potentially increase your returns in the long run.