Making Money

Inflation: Hold on tight

Wall Street may have cheered the Federal Reserve’s recent interest rate cut, said Dean Calbreath in The San Diego Union-Tribune. Main Street got worried about inflation. So far this year, inflation is running at 3.7 percent. But that doesn’t reflect the many price rises Americans already are feeling. “Many of the goods in your grocery basket—such as bread, eggs, orange juice, lettuce, tomatoes, and ground chuck—have risen between 4 percent and 5 percent per year.” You’re likely paying about 84 percent more to fill up your car today than in 2000. The costs of electricity, natural gas, and medical care also have outpaced inflation. “Any housewife can tell you that the official inflation rate is just not true,” says William Rutherford, a former Oregon state treasurer who runs an investment management firm near Portland.

Fortunately, you can counteract some of inflation’s effects, said John Waggoner in USA Today. Now might be a good time to get out of most bonds. “The bond market views inflation the same way that Superman views kryptonite.” The price of 10-year Treasurys recently dipped sharply, largely because of inflation fears. “Adjust your portfolio to protect your savings by investing in gold, inflation-adjusted bonds, or investments denominated in foreign currencies.” Consider Treasury inflation-protected securities, or TIPS. These offer some protection by taking into account not only consumer prices but food and energy costs as well. “If oil continues to soar, you’ll get some benefit from TIPS.” Gold has, from time immemorial, been the refuge of inflation hawks. “But beware: Few funds are as volatile as gold funds.” Don’t put more than 5 percent into the shiny stuff.

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Many companies now offer investment products designed to hedge against inflation, said Eleanor Laise in The Wall Street Journal. “A slew of exchange-traded funds (ETFs) may offer some comfort to investors.” ETFs trade like stocks, but track various baskets of securities, including TIPS and such hard assets as copper, crude, and gold. Another “smart bet” is the very consumer-staples companies whose price hikes have been hitting your wallet. After all, they make products that “people buy even when prices look high.”