Hedging: How to Prevent Inflation From Sinking Your Portfolio in 2024
6 minute read
March 4, 2024


Inflation erodes the purchasing power of money—today’s dollar will buy less in the future. So, how do you prevent inflation from taking down your investment portfolio?

Inflation presents a significant challenge for investors aiming to preserve, let alone grow, their wealth.

Recognizing and countering inflation’s effects is not just a defensive strategy but a proactive step in ensuring the long-term resilience and growth of one’s investment portfolio.

Let us show you what we mean and how to prevent inflation from taking you down with it.

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What is inflation and how does it affect the economy?

Inflation refers to the increase in the average price level of goods and services, which leads to a decrease in the value of money.

This phenomenon is commonly gauged using economic measures like the Consumer Price Index (CPI) among other indicators.

The roots of inflation can be traced to several causes, such as rising costs of production, greater demand for goods and services, and broad monetary policies.

Inflation impact

The economic implications of inflation are wide-ranging.

  • For consumers, it means higher prices and reduced purchasing power
  • For businesses, it can lead to increased costs and uncertainty regarding future pricing
  • In the financial sector, inflation affects interest rates, with central banks often adjusting rates to control inflationary pressures

In turn, this influences the value of bonds, savings accounts, and other fixed-income investments.

The historical relationship: inflation and investment returns

Historically, inflation and investment returns have had an intricate relationship.

During periods of high inflation, cash and fixed-income investments typically underperform due to their fixed returns, which do not keep pace with rising prices.

Conversely, assets like real estate and stocks have often provided some hedge against inflation. This is because companies can pass on higher costs to consumers, and property values tend to rise with inflation.

Inflation and the stock market

However, the relationship is not always straightforward.

Stock markets can react negatively to inflationary pressures due to higher interest rate jitters and decreased consumer spending.

Therefore, understanding this historical relationship is crucial for investors to develop strategies to mitigate inflation’s impact on their portfolios.

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Strategies to combat inflation in your investment portfolio

Inflation is a pervasive challenge for investors, which necessitates strategic planning.

Effective strategies focus on:

  • Diversification
  • Exploring different asset classes
  • And understanding the unique characteristics of each in relation to inflation

Diversification: A key tool in the fight against inflation

Diversification remains a cornerstone strategy in investment management, particularly in mitigating the impact of inflation.

By spreading investments across various asset classes—i.e., stocks, bonds, real estate, and commodities—investors can reduce risk and capitalize on different assets’ reactions to inflation.

Equities often offer growth potential that can outpace inflation, while bonds provide income, although they can be sensitive to inflationary trends.

Real Estate Investment Trusts (REITs): A hedge against inflation

REITs, which invest in commercial, residential, or industrial real estate, can be effective hedges against inflation.

As property values and rents tend to increase with inflation, REITs often see their income and, by extension, their distributions to investors rise.

Fixed-income investments: Balancing risk and inflation protection

While traditional fixed-income investments like bonds are vulnerable to inflation, certain types, such as Treasury Inflation-Protected Securities (TIPS), are designed to combat this issue.

TIPS offers returns that adjust based on inflation, thus providing a buffer against the eroding effects of rising prices.

Alternative assets: Exploring opportunities beyond traditional markets

Investing in alternative assets like commodities, private equity, or hedge funds can also offer inflation protection.

Commodities, particularly precious metals like gold, have historically performed well during high inflation periods.

These assets often have a low correlation with traditional equity and bond markets, providing diversification benefits and a hedge against inflationary pressures.

The role of private mortgage REITs in inflation hedging

There are a lot of investment options out there, and private mortgage Real Estate Investment Trusts (REITs) stand out as a distinctive choice for combating inflation.

Understanding private mortgage REITs

Private mortgage REITs are entities that invest in private mortgages or mortgage-related securities.

Unlike their public counterparts, they are not traded on major stock exchanges, offering a different risk and reward profile. They generate income primarily through interest earned on mortgage loans.

This structure can provide a steady income stream.

How private mortgage REITs serve as an inflation hedge

  1. The interest rates on mortgages often rise with inflation, leading to higher income for these REITs
  2. As property values increase with inflation, the underlying assets of these REITs generally appreciate in value, potentially leading to capital gains as well as increased .
  3. Their private nature also offers insulation from the immediate volatility of public markets.

Evaluating private mortgage REITs for your portfolio

Incorporating private mortgage REITs into a portfolio requires careful consideration. Investors should assess the REIT’s portfolio quality, management expertise, and track record.

It’s also crucial to understand the liquidity and risk factors associated with private investments, which differ significantly from public market securities.

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Practical tips for implementing inflation-proof investment strategies

Creating an inflation-resistant investment portfolio involves more than just selecting the right assets. It requires ongoing management and adaptability.

Regular portfolio review and rebalancing

Regularly reviewing and rebalancing your portfolio is essential—assessing your investment mix and adjusting it to maintain your desired level of risk, return, and inflation protection.

As market conditions and inflation rates change, so too should your portfolio allocation.

Staying informed: The importance of market awareness

Keeping abreast of economic trends and inflation indicators is also a vital component.

Understanding factors that influence inflation, such as monetary policy and global economic events, can provide insights into potential portfolio adjustments.

Being informed allows for proactive decision-making rather than reactive adjustments.

Working with financial professionals for tailored advice

Working with financial advisors or investment professionals can be invaluable.

They can provide personally tailored advice based on your investment horizon as well as your individual financial goals and risk tolerance.

Financial professionals can also offer access to a broader range of investment options, including private mREITs, and help navigate the complexities of inflation-proofing a portfolio.

How to prevent inflation from sinking your portfolio—the bottom line

Effectively guarding your investment portfolio against inflation requires a blend of strategic diversification, thoughtful asset selection, and continuous adaptation to economic changes.

Careful attention must be paid to crafting the right strategy tailored to your specific financial goals and risk tolerance.

Marquee Funding Group’s private mREIT Capital Fund 1 offers investors the opportunity to diversify portfolios, preserve capital, and earn high-yield, passive income. 

Prevent inflation from impacting your investments—start investing with Marquee Funding Group today.

Our team of experts can assist you in building a robust, inflation-resistant portfolio and maximize your returns.

Photo by Headway on Unsplash

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