Why tips are a bad inflation investment

With million memberships and a growing online presence, it is well positioned for a higher-inflation environment. Costco can keep costs relatively low, and customers will likely remain loyal through modest price increases.

In contrast, earlier-stage companies can have a tougher time. They often are spending generously to acquire users and focusing on long-term growth before profits. While the company still has long-term growth potential, it is facing an uphill battle in the short-term since it must spend to acquire customers, and faces higher prices with inflation.

Outside of traditional stocks, there are plentiful opportunities to hedge your portfolio. Traditionally, gold often performs well during high inflation. Because the supply of gold increases slowly, the price rises when investors flock to the safe haven asset. Investors have started picking a less traditional hedge too in cryptocurrency.

Using the same logic around a finite supply, cryptos may increase in demand as investors look for uncorrelated investments to the rest of their portfolio. While the low risk of stablecoins may sound appealing, those will lose purchasing power with inflation as the US dollar to which their price is pegged becomes less valuable. High inflation significantly weakens your purchasing power -- how much your money can buy. While fixed rate bonds and CDs offer safety and little risk for your savings, they can't keep up with high inflationary environments.

Investors holding onto these bonds will lose purchasing power, since whatever these investments pay in interest will probably remain well below inflation. A nice alternative is buying TIPS instead of traditional bonds. As the "Treasury Inflation Protected Securities" name suggests, these bonds adjust their coupon payments to protect investors from inflationary risk.

With inflation coming back, these are a better choice than fixed rate investments. Higher inflation is coming, but you shouldn't view it as a cost. It's an opportunity make sure your portfolio has uncorrelated investments that can perform well during inflation. Skip Navigation. Key Points. Rising prices can erode a portfolio's profit. But there are some moves investors can take to shield their money from inflation — and even take advantage of the environment, experts say.

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But there are reasons why retirees' monthly checks might not go as far. Still, even temporary, mild inflation can erode the value of many assets and any fixed income they yield. Retirees and others depending on their investments for current income may see more sense in hedging. A diversified portfolio typically includes some assets that perform better than some others during inflationary times. Benson said clients have been asking for months what they should do about inflation and in some cases have increased their holdings of such assets.

One instrument specifically designed as an inflation hedge is Treasury inflation-protected securities TIPS , which have been offered since TIPS also pay semiannual fixed interest, typically well below that of ordinary Treasury bonds. They may be held to maturity or sold on the secondary market.

Treasury offers them in both competitive and noncompetitive auctions, with maturities of five, 10, and 30 years. Some corporate bonds also include an inflation-protection feature CIPS. TIPS make sense, but only in a conservative strategy, and even there probably not as a primary position, Benson and Goodman said. You're not going to get the growth you need in excess of inflation. Real property has also been long considered a refuge from inflation, although most investors won't be looking to purchase buildings and land, which carry their own risks and volatility, or "noise," as Goodman termed it.

Rather, positions in mutual funds and exchange-traded funds ETFs investing in real estate are generally more feasible and predictable, along with real estate investment trusts REITs , and may provide some of the perceived inflation protection of the underlying property interests. REITs "are another asset class that we include in almost all client portfolios," Benson said.