The FOMC (Federal Open Market Committee) meets eight times a year to assess the health of the economy. At their last meeting on June 13^th-14^th, they voted to keep the interest rate steady. This is the first time since March 2022 they have not increased the Fed Funds rate in their quest to slow the economy’s growth and dampen inflation. But while the interest rate remains the same for now, the Fed left the door open for future rate increases in the coming months.[1]

As the Fed and Treasury leaders strategize in Washington on how best to reduce inflation, what can individual investors do to help mitigate the impact of rising prices?

Protecting financial assets from high inflation requires a combination of strategies.

Here are some steps you can take:

Diversify your investments
Spread your investments across different asset classes such as stocks, bonds, real estate, and commodities. Diversification can help reduce the risk of inflation affecting your entire portfolio.

Invest in inflation-protected securities
Consider investing in inflation-protected securities like Treasury Inflation-Protected Securities (TIPS). These are a low-risk investments because they are backed by the U.S. Government. These bonds adjust their value based on changes in the Consumer Price Index (CPI), providing protection against inflation. However, TIPS typically pay lower interest rates than other securities, so they aren’t the best choice for investors on fixed incomes.

Consider equities
Stocks have shown the ability to outpace inflation over the long term. Look for companies with strong fundamentals, robust cash flows, and a history of raising dividends. While past performance is never a guarantee of future results, stocks have historically provided higher returns than other asset classes.[2]

Review your bond holdings
High inflation erodes the purchasing power of fixed-income investments. If you hold bonds, consider diversifying into shorter-term bonds or bond funds, as they are less sensitive to interest rate changes and offer more flexibility to adjust to inflation.

Maintain a liquid emergency fund
Ensure you have an emergency fund in cash or highly liquid assets. This will provide a cushion in case of unforeseen expenses or job loss during periods of high inflation or market volatility.

Consider alternative investments
Explore alternative investments like hedge funds, private equity, or real estate. While these investments can produce better-than-average returns, they often carry more risks than traditional investments.

Evaluate your cost of living
Assess your spending patterns and identify areas where you can reduce expenses. This can help offset the impact of rising prices and protect your purchasing power.

Monitor and adjust your portfolio
Stay informed about market conditions and economic indicators. Regularly review your portfolio’s performance and adjust as necessary to align with your financial goals and changing inflation expectations.

Consult with your financial advisor
While each of these strategies can help to cover your assets against inflation, they involve varying degrees of risk and may not be suitable for every individual investor. It’s crucial to understand the potential risks and rewards associated with each approach. But how do you know what to do?

This is when your relationship with your trusted Larson advisor is key.

They can help you develop a comprehensive plan to safeguard your financial assets from high inflation and ensure your investment strategies align with your goals and risk tolerance.

Each person’s financial circumstances are unique, and we encourage you to discuss these options with your advisor. Schedule a quick check-in today to reaffirm your financial goals, receive reassurance amidst market fluctuations, and discover potential opportunities for growth. Reach out to your advisor now and navigate the markets with confidence.

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[1] https://www.barrons.com/livecoverage/fed-meeting-decision-interest-rates-powell-speech-today?mod=article_inline

[2] https://equitable.com/retirement/articles/inflation-and-long-term-investing#:~:text=Over%20time%2C%20stocks%20can%20outpace%20inflation&text=Over%20the%20long%20run%20%E2%80%93%2010,returns%20than%20other%20asset%20classes