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How can you best protect your investments if inflation continues to rise? – The Arizona Republic

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The accelerating pace of inflation is one of the main economic trends of 2021.

The Consumer Price Index or CPI, the government’s main inflation gauge, has ran around a 5% annual pace for the past several months, well above last year’s 1.4% rate and the 50-year average of about 3.9%.

Higher rates of inflation have the potential to erode the value of investment portfolios, reviving memories of the 1970s, when large U.S. stocks took it on the chin.

Various investment hedges can help blunt the damage, but the current inflationary trend might not last all that long — and you might already have sufficient protection. Before making any drastic moves into inflationary hedges, consider these issues:

Which assets hedge against inflation?

Various assets can help protect against inflationary spikes. TIPS, or Treasury Inflation Protected Securities, are one obvious example on the bond side. Gold and other tangible assets including real estate also have reputations as inflation hedges. Cryptocurrencies, too, might fit that role.

But during a Sept. 23 webinar on inflation protection hosted by investment researcher Morningstar, the panelists found common ground in a less-obvious area: The stock market.

“You’re buying shares in real companies that make real goods and services,” the prices of which tend to go up over time in an inflationary environment, said Catherine LeGraw, an asset-allocation specialist at investment firm GMO

Specifically, the shares of natural resource, commodity and real estate companies can fare well during inflationary periods. But other corporations can too, assuming they can pass along price increases to consumers.

In the Morningstar discussion, gold received relatively little attention, though Nic Johnson, a commodities portfolio manager at PIMCO, described the metal as an asset that you can expect to “keep pace with inflation over very long periods.”

The panelists spent little time on bitcoin and other cryptocurrencies, noting that they lack any fundamental value. If you invest in cryptocurrencies, LeGraw said, you had better hope that “the next guy will like them better than you do.” 

Do you need more protection?

Before making any adjustments, it’s worthwhile to take inventory of what you own in your investment portfolio. Oil and other energy stocks, mining enterprises, real estate companies and other traditional inflation stalwarts already are included in most broadly diversified mutual funds and exchange traded funds, though perhaps not in the weightings that you would like.

Energy stocks, for example, make up less than 3% of the broad Standard & Poor’s 500 index. So too for materials companies and those engaged in real estate. Contrast that with, say, nearly 28% of the index’s assets held in information technology stocks, 13% in health care and nearly 12% in consumer-discretionary companies.

For more punch, you might consider adding a bit more to inflation-protected assets such as natural resources or commodity companies, but be wary of overdoing it. As a general rule, allocating 10% or 20% specifically in these areas to an already broadly diversified portfolio likely would suffice, Johnson said.

Also consider the inflation protection offered by other assets you might have, such as a house or rental properties. And if you’re collecting Social Security retirement benefits, keep in mind that you can look forward to cost of living adjustments, making Social Security a decent inflation hedge. The Social Security Administration next month will announce the COLA for 2022.

Where is inflation heading?

Predicting the future direction of inflation isn’t easy. Despite occasionally alarming headlines, It’s possible that we have seen some of the highest numbers in this cycle already. Several long-term deflationary forces remain in place, from global trade and relatively inexpensive imports to the technological revolution, which continues to moderate costs for computing hardware and other goods and services.

America’s aging population also could contribute to disinflation, as older people tend not to spend as much on new homes, furnishings, vehicles, entertainment and so on (though more in other areas, especially health care).

The three Morningstar panelists were asked when we are likely to see CPI numbers drop and stay below 4% on an annual basis. Evan Rudy, a portfolio manager at investment firm DWS, said he expects that will occur in the second half of 2022, while Johnson and LeGraw anticipate it happening earlier.

The reopening of the economy from the COVID-19 pandemic has boosted inflation as consumers started buying things they had put off, from vehicles to air travel, and as more people re-entered the work force and were hired.

Supply chains continue to be stretched and that could continue well into next year. Prices for some items already are rising at double-digit rates, and retailers and others are warning of shortages for the holiday-shopping season.

Still, many of these pressures aren’t likely to be permanent. Johnson drew a parallel between recent inflationary increases and the start of a marathon. All the runners initially congregate in a small pen behind the starting line, he noted, but as the race unfolds, that congestion eases as runners spread out and find their own paces.

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Clues from the past and future

Past periods of high inflation weren’t all that common, and unique catalysts tended to spark each such incidence. Back in the 1970s, for example, the OPEC oil embargo pushed up energy and transportation costs, and wages were escalating at a brisk pace. There’s no such oil embargo currently, and a relative lack of collective bargaining and union strikes these days suggest that wage inflation isn’t likely to become rampant, LeGraw said.

“Do workers collectively have enough power to cause broad wage increases?” she asked. “Right now, workers lack that power.”

Bond investors could get hammered if inflation and inflationary expectations continue to rise and if interest rates creep higher, as seems plausible. Bond prices fall and yields tend to rise under such conditions. Yet prices are still high and yields remain near decades-low levels on Treasury securities and many other bonds, LeGraw noted, suggesting that investors don’t see these as long-term threats.

Federal policies also play a role. As an example, the push toward green energy and more electric-vehicle charging stations, as proposed under President Biden’s Build Back Better plan, could spark more inflation initially if those initiatives are enacted and construction projects get carried out, Johnson said. But the push to renewable energy could be disinflationary in the long run, he added, if it means cheaper energy eventually.

Reach the reporter at russ.wiles@arizonarepublic.com.

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Bitcoin hovers near 6-month high on ETF hopes, inflation worries

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Bitcoin hovered near a six-month high early on Monday on hopes that U.S. regulators would soon allow cryptocurrency exchange-traded funds (ETF) to trade, while global inflation worries also provided some support.

Bitcoin last stood at $62,359, near Friday’s six-month high of $62,944 and not far from its all-time high of $64,895 hit in April.

The U.S. Securities and Exchange Commission (SEC) is set to allow the first American bitcoin futures ETF to begin trading this week, Bloomberg News reported on Thursday, a move likely to lead to wider investment in digital assets.

Cryptocurrency players expect the approval of the first U.S. bitcoin ETF to trigger an influx of money from institutional players who cannot invest in digital coins at the moment.

Rising inflation worries also increased appetite for bitcoin, which is in limited supply, in contrast to the ample amount of currencies issued by central banks in recent years as monetary authorities printed money to stimulate their economies.

But some analysts noted that, after the recent rally, investors may sell bitcoin on the ETF news.

“The news of a suite of futures-tracking ETFs is not new to those following the space closely, and to many this is a step forward but not the game-changer that some are sensing,” said Chris Weston, head of research at Pepperstone in Melbourne, Australia.

“We’ve been excited by a spot ETF before, and this may need more work on the regulation front.”

 

(Reporting by Hideyuki Sano in Tokyo and Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa)

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These are the only times it's smart to make changes to your investment portfolio – CNBC

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

Recent market volatility has many investors wondering if now is a good time to alter their investments.

The short answer experts generally advise? It’s rarely actually a good time to make changes to your investment portfolio.

“Most investors who jump in and tweak their portfolios typically do it in response to market conditions and history has shown us this just doesn’t work out in their favor,” says Tony Molina, a CPA and senior product specialist at Wealthfront. “What often feels right when it comes to investing, is usually wrong.”

Though you may feel tempted to modify your investments when the market dips, you’re often better off leaving them alone for the long haul. The reality is, downturns happen but your money is safer if you ride out the storm. Just as quickly as the market can go down, it can also go up — and keeping your cash invested throughout these fluctuations is what helps your money grow over time. This is especially true when investing in index funds and ETFs.

But, we wondered, is there ever a good time to adjust your investments? Turns out, there are a couple conditions when it’s OK.

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When it’s a good time to make changes to your investment portfolio

While it’s typically best to leave your investments alone, you may want to change course if there has been a change in your investing goals’ time horizons, and consequently, your risk tolerance, advises Ivory Johnson, a CFP and founder of Delancey Wealth Management.

On one hand, you may find that you have extended the number of years until retirement and can take on more risk. Or, on the other hand, perhaps you’re retiring sooner than you thought and shortening that timeframe means that you need to put your money in lower-risk investments.

Using a robo-advisor is an effective workaround to avoid having to worry whether your investments match your risk tolerance. Robo-advisors have users fill out a brief questionnaire that helps them know how to best allocate your cash depending on your investment goals and the top robo-advisors will regularly rebalance your portfolio for you as needed.

Betterment, for example, will recommend a stock-and-bond allocation based on your goals and adjust automatically whenever you make a deposit, withdraw funds or change your target allocation. Betterment’s algorithms will also check your portfolio drift (how far you are from your target allocation) once per day and rebalance if necessary.

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The automated investing platform through SoFi Invest® automatically rebalances investors’ portfolios as well, but on a quarterly basis. SoFi is a good option for investors also looking for lending products as SoFi members receive a 0.125% interest rate discount on SoFi’s student loan refinancing and personal loans.

Johnson adds that he would generally change an investment allocation when a big event has taken place, such as a severe illness or a large economic windfall (like an inheritance). In both of these cases, an investor’s need for capital appreciation reduces, he says.

Molina agrees that a good time for investors to make changes to their portfolios would be in response to major life events. Specifically, he means events that put the investor in a position where they would need to access their investments in the near future (three or so years). Examples include marriage, a family emergency or as an investor nears retirement.

“This would be a good reason to reduce their investment risk or pull out their funds altogether,” Molina says.

Much of an investor’s decision to change their portfolio in this scenario depends on how soon they may need to withdraw their funds. “In general, if you need the funds within the next three years or less, you may want to consider changing your investment strategy,” Molina adds.

When it comes to investing in individual stocks, keep in mind that you should be using money that you are comfortable having tied up for at least the next five years. While individual stock investors are advised to hold for the long term (especially during times of volatility) in order to best maximize their returns, they may choose to sell a losing stock if it is more risk than they can handle and it generates significant financial loss. Investing in index funds and ETFs are an easy way to take on less risk and diversify your investments.

Bottom line

If you’re thinking of adjusting your investments, most of the time it’s probably not the best move for your long-term growth in the market.

The exceptions to this rule are if your time horizon and risk tolerance suddenly change. Another exception is if there has been a major life event where you no longer need your money to be invested, or where you could be better off financially with the cash accessible in your wallet.

Catch up on Select’s in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Cushman Investment in WeWork Rests on Successful Stock Listing – BNN

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(Bloomberg) — Cushman & Wakefield Plc agreed to invest $150 million in WeWork Cos., contingent on the flexible work company successfully completing its forthcoming stock listing, a person familiar with the matter said. 

The investment was born of a partnership the two companies unveiled Aug. 9. They said at the time that they were discussing a potential investment but hadn’t signed a definitive agreement.

A spokesman for Cushman said the company was pleased with the progress of the WeWork partnership but declined to comment on the investment. A spokesperson for WeWork also declined to comment on the investment. WeWork is preparing to go public via a $9 billion blank-check merger in late October.

The companies cited the effects of the Covid-19 pandemic as a catalyst for their accord. For many businesses, the return to the office has been a stilted process. Widespread vaccines in the U.S. brought some workers back, but the return stalled, along with vaccination rates, and outbreaks of new variants played a role.

“The partnership we announced with Cushman & Wakefield in August is a testament to WeWork’s long-term value proposition and we remain incredibly excited about the opportunities that lie ahead as we team up with one of the leading real estate firms in the world,” WeWork said in a statement Sunday.

The deal represents a marriage of old real estate and new. Cushman & Wakefied is more than a century old and one of the largest commercial real estate services companies in the world. WeWork is barely a decade old.

©2021 Bloomberg L.P.

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