For Inflation Protection, Commodities Belong in the 'Too Hard' Pile

On the pitfalls of defending against the slow, corrosive effects of inflation with an incredibly volatile asset. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=30159&elqTrackId=2eb245a7e3f34e7e8d17b4ba07d5833d&elq=d4c250b5880745199e6d2d3ced3a67fb&elqaid=30159&elqat=1&elqCampaignId=13834) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] I’m not a worrier when it comes to most financial matters, but I’ve sure been ruminating over inflation lately. As the grocery shopper in my family, I can’t help but notice that my weekly bill has crept up a good $25 or so over the past few months. And I’ve observed the same price creep when getting gas for my car. I always fill up when I’m down to a fourth of a tank (like my dad taught me ), but my latest fill-up was over $50—not the $40 or so that it had been for many years. [Morningstar’s view]( is that the supply-chain issues that have contributing to higher inflation will ease by next year and that inflation over the next five years will run at about 2.3%. That’s not far away from the current inflation expectation embedded in Treasury Inflation-Protected Securities. Yet as consumers and investors, I think it’s also worth remembering that we’ve benefited from a pattern of benign inflation for many years and that it may not always be so. If you’re forced to spend more because of higher prices, how can you set up your portfolio to keep up? This seems [especially germane to retirees]( who are actively consuming from their portfolios. One investment I can’t get enthusiastic about in the inflation-protector role? Commodities. They’re volatile, investors have timed them all wrong, and I have [zero confidence]( (link to my commodity piece from 6/24) that they’ll do any better in the future. Moreover, one of the main calling cards of commodities—the ability to diversity a stock/bond portfolio—has been [on the wane](. So what should be in your inflation-fighting toolkit? Treasury Inflation-Protected Securities will never experience the kind of explosive upside that commodities have enjoyed this year, but that’s kind of the point: Inflation takes a slow, steady bit out of your portfolio, and TIPS slowly and steadily work to make you whole. Vanguard Short-Term Inflation-Protected Securities VTAPX/VTIP is my go-to fund/ETF, but I-bonds, which can be purchased directly from the U.S. Treasury, fulfill a similar role. I also like the idea of including dividend-growth stocks in a portfolio to defend against higher inflation; my colleague Susan Dziubinski recently discussed some of [the best funds of this ilk](. Cheers to being prepared! Christine Benz [For Inflation Protection, Commodities Belong in the 'Too Hard' Pile]( On the pitfalls of defending against the slow, corrosive effects of inflation with an incredibly volatile asset. [Read More]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [Retirees: If You Love Income, You Should Love Cash Flow Even More]( You diversify your investments; why wouldn’t you diversify how you source your in-retirement living expenses? [Read More]( [Jack Brennan: Price Pressure in the Advice Business Is 'Inevitable']( The author and former Vanguard CEO discusses the current investment landscape, his thoughts on ESG and ETFs, and the outlook for retirement planning. [Read More]( [How to Build a Portfolio You Don't Have to Babysit]( Take these steps to become more of a hands-off investor. [Read More]( Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2021 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602