Strategies to Help Protect Your Assets Against Inflation

Despite recent signs that inflation may be slowing, many consumers remain concerned about the erosion of their purchasing power. Inflation, or the sustained increase in the general price of goods and services, can significantly impact savings and investments if not adequately managed.

So how does the regular person combat what often feels like such a large and ominous economic force? OMB Bank President and CEO Mark Harrington said it’s important to take proactive steps to protect your assets, but just as critical to understand inflation’s influence on them.

The Impact of Inflation

Inflation can erode the value of cash holdings, making it essential for individuals to reassess their financial strategies. For most people that’s the money held in traditional checking and savings accounts or the occasional money market.

When inflation rises, the real value of money decreases, meaning that the same amount of cash will buy fewer goods and services over time. This poses a significant risk to savings that are not earning enough interest to keep up with inflation.

"Inflation is a silent tax on savers," Harrington said. "If your assets are not growing at a rate that exceeds inflation, you're effectively losing money."

Diversify Your Portfolio

One of the primary strategies to combat inflation is to diversify your investment portfolio. Diversification helps spread risk across various asset classes, some of which may perform better than others during inflationary periods. Traditionally, assets like stocks, real estate and commodities like gold or other metals have been seen as hedges against inflation.

"Anyone looking to keep pace with inflation should consider holding a mix of assets that have historically performed well during inflationary periods," Harrington said. "Stocks and mutual funds, for instance, often provide a good hedge because companies can pass on higher costs to consumers, thereby maintaining profitability."

Harrington also emphasized the importance of including tangible assets like real estate, including your own home, in their portfolio.

"Real estate has a unique advantage during inflation because property values and rents typically rise, providing a natural income stream that can outpace inflation," he said.

Reevaluate Fixed-Income Investments

Inflation can be particularly harmful to fixed-income investments, such as bonds, because it erodes the purchasing power of the interest payments received. As inflation rises, the fixed payments from bonds become less valuable, leading to a decrease in their real return.

"Investors should be cautious with long-term fixed-income investments during periods of high inflation," Harrington warned. "If current rates are appealing, consider shorter-duration certificates of deposit to mitigate some of the risks. To add a little liquidity, certainly consider a laddering strategy so that your CDs mature at different times."

Maintain a Long-Term Perspective

While inflation can be alarming, it's important to maintain a long-term perspective. Reacting impulsively to inflationary pressures can lead to poor investment decisions.

"Don't let short-term inflationary fears derail your long-term financial goals," Harrington urged. "Staying the course with a well-diversified portfolio that includes inflation-resistant assets is often the best strategy."

Harrington also highlighted the importance of regular portfolio reviews.

"As inflation dynamics change, it's crucial to periodically reassess your positions to ensure they align with your financial objectives and risk tolerance," he said.

Inflation is an inevitable part of the economic cycle, but with careful planning and the right strategies, it doesn't have to undermine your financial security. By diversifying your portfolio, reevaluating fixed-income investments and maintaining a long-term perspective, you can protect your assets from inflation's erosive effects.

"Being proactive and informed is the key to safeguarding your wealth," Harrington said. "In today's economic environment, it's more important than ever to take steps to ensure your assets continue to grow despite inflation."

With inflation continuing to be a pressing concern, these reliable strategies can help consumers safeguard their financial futures and maintain their purchasing power in an uncertain economic landscape.