Your Best Money Bets When Inflation Rises

Published on: 06/08/2021

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss whether you need to make changes to your portfolio if inflation continues to rise.




Hi I’m Tony Ogorek, I’m here with Portfolio Manager Jeff Viksjo and today we are going to take a look at the rising inflation environment that some believe that we are in, and whether you need to be making changes to your portfolio.  You know, Jeff, the jury’s still out in terms of whether the increases in inflation are going to be transitory or whether they are going to be more permanent.  We really don’t have an opinion on that.  We’re probably going to have to wait a few more months to see how things are trending, with more data points.  But let’s talk a little bit about the context of inflation and how that can make a difference in terms of how your portfolio should be structured.


Tony it’s not as simple as inflation is bad for stocks, for instance, or inflation is good.  It’s more complicated than that. We look back at this chart and its showing four different asset classes; stocks, bonds, commodities, and treasury inflation protected securities, and it looks at how did these do over that last 50 years in different inflationary environments.  The chart is just showing the percent of time in a rolling 12 month period that they beat inflation, that the returns were higher than inflation.  So a couple unsurprising things is that commodities do really well in inflationary environments, when prices are rising.  We knew that already.  And bonds don’t do well in inflationary environment.  We knew that already.  What’s surprising to me, Tony, is that stocks tend to do well across the environments, no matter what is happening with inflation.


And the reason for that, Jeff, I think, is that companies have the ability to raise prices.  They also have the ability to keep the prices the same, but reduce the size of the box of things they are selling.  They also have the ability to innovate and come up with new things that people feel they have to buy.  So that really puts them in the driver’s seat in terms of maintaining profitability in this kind of environment.


Right now we are in a low inflationary environment, but rising.  We look at the chart and the best asset class, by far, is stocks.


So Jeff, I guess we’d have to say that those who ignore history are bound to repeat the mistakes of the past.  What we know is that over the last 50 years this kind of environment, stocks have really done well and we think it makes sense to continue with stock allocations as they’ve been.

Hopefully you enjoyed this edition of Chart Talk.  We look forward to seeing you again soon.

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