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Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

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QUESTION:
If inflation keeps getting worse, you know, what are some possible good investments for the outlook?

TOM VAUGHAN:
Yeah. So if you look, the overall stock market is down during this inflationary time period, the overall bond market is down during this inflationary time period, both because there’s expectations for higher interest rates, right.

when rates go up, there’s a couple reasons that equities might fall in that environment.

Number one, it makes it more expensive for businesses to operate. if they go borrow, you’re gonna have to spend more for that interest. . .

And, you know, so we’ve got a scenario also where, because inflation is going up, they’re having to pay employees more, which can also impact their earnings. And then we’ve got the gas prices going up.

And I know, target said that that was one of their big problems was transportation costs have gone up so much. And so all of these are difficult on the stock market as a whole. . .

So number one, would be a treasury, inflation, protection, security. And so that that’s a what they call a tip, right? So it’s a treasury that is designed to pay more as the rates go up. And so what it does is it kind of insulates at least somewhat. So the price because normally the price would fall in a bond as rates go up. And that doesn’t have as much of a problem in a tip, specifically short term tips of what had been doing the best. And that’s certainly what we have in our portfolio.

A couple of other areas that have done well, so far this year are, of course, energy, energy is up tremendously. So far. This year, I’d be a little bit nervous about jumping into energy just because it is so high comparison. . .

If you buy a property have high inflation, for a long enough period of time, rents are going up, one of the big drivers of current inflation is the increasing rent. And so for those people that have rental properties, this is a pretty good environment, at least for them not so great for the renters. But for those for the owners, this is not a bad place for an investment either, I’d be a little nervous about buying new property, just because we have had the lowest number of new mortgage applications for new home purchases and 22 years last this week. . .

So that’s one of the things with both energy and real estate, they’ve had such a big run, it’s a little bit difficult, you know, utilities could continue to do well, tips could continue to do well here too.

Cash isn’t a terrible thing, either. It used to be always, you know, the money markets paid zero, they’re gonna pay more now. . .

If the market starts to see some softening and inflation, the market could take off, and you’re over here in these things that are designed to do well in an inflationary environment. . .

So is there any kind of like investment that you would recommend to get exposure to kind of the, like utilities and energy without really over exposing yourself?

We have targeted pieces that we use anywhere from 3% to 6% , depending on how conservative portfolios but one of the pieces for for energy is two big ones:
One is the spider energy SLE is the ticker symbol. And the other one is the Vanguard energy with VDE is the ticker symbol. Vanguard is more broad has a bit more in it has been a bit more volatile. The XLR is just S&P 500 companies only. . ….(read more)

LEARN ABOUT: Investing During Inflation

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Inflation refers to the general increase in prices of goods and services over a certain period. When inflation worsens, it can negatively impact the purchasing power of individuals and lead to a decrease in the value of savings. However, certain investments can potentially do well during high inflation periods and may provide some protection against its effects.

One potential investment to consider during times of high inflation is real estate. Real estate prices tend to rise with inflation, particularly in areas of high demand. Investing in rental properties or REITs (real estate investment trusts) can provide a steady stream of income, particularly as rents often increase during inflationary periods. However, it is important to understand the local market and economic factors that affect the real estate industry before investing.

Another investment that may fare well during inflation is commodities such as precious metals (gold, silver, etc.) and energy resources (oil, natural gas, etc.). These commodities often hold their value during inflation and can be a hedge against the decreasing value of currency. Gold, in particular, has historically been seen as a safe-haven asset during periods of uncertainty and inflation. However, commodities can be volatile and unpredictable in terms of pricing.

Stocks that have a history of providing dividends can also be a good investment during inflation. Investments in companies that manufacture consumer staples or provide essential services such as healthcare, utilities, or telecommunications, may be less affected by inflation than companies that sell luxury goods. Dividend-paying stocks can potentially provide a steady income stream over time, regardless of inflation.

Finally, investors may consider investing in bonds, particularly Treasury Inflation-Protected Securities (TIPS). TIPS are specifically designed to protect against inflation as their principal value is adjusted periodically based on the current inflation rate. While they may offer lower returns than stocks, TIPS can provide a safe and reliable investment option for those seeking to protect against inflation.

In conclusion, investing during times of inflation requires careful consideration and research into the specific market conditions and individual investment options. Real estate, commodities, dividend-paying stocks, and TIPS can potentially provide a protective barrier against inflation and can be excellent investment options for those seeking to preserve their wealth. However, diversification of investment portfolios is recommended to lessen potential risks and capture the potential benefits of all investment types.