Inflation in Canada officially reached its highest annual rate recorded since 1991 this January, coming in at 5.1 percent according to Statistics Canada. Inflation in the U.S. is even worse, with rates at a forty-year high of 7.5 percent. To help investors protect their portfolios from inflation, the Financial Post recently spoke with Sightline Wealth Management for insight.
How to specifically hedge your portfolio against inflation depends on whether you believe our current inflation rates are transitory and due to supply chain issues or a more permanent issue. For those who believe it will be transitory, and therefore temporary, less may be more.
“In that case, the best strategy may simply be to do nothing,” says Sightline Senior Investment Advisor Paul de Sousa. “It would be counterproductive to quickly shift the portfolio and then quickly shift it back. Timing would be important because selling today might be costly, and returning the portfolio to its original balance a few months later might also cost the investor an additional premium.”
However, if you believe that the current inflation is more structural, greater steps to mitigate risks in your portfolio will likely be necessary.
“If rates rise rapidly at the same time as a Fed taper, it could cause quite a bit of volatility and shifting of asset classes,” de Sousa tells the publication. “They may look at hard assets like gold or look at investments representing non-discretionary spending by consumers. That could include commodities such as energy, infrastructure and agribusiness.”
Regardless of whether you believe this inflation is temporary or here to stay, Sightline recommends individuals look beyond the headline numbers. Inflation is often a personal matter and varies on each family’s consumption habits.
“The inflation formula is not as straightforward as calculating the difference in the price of a fixed basket of goods and services. There’s several adjustments and substitutions and that may not represent reality for some people. If inflation is hitting you hard, there’s no comfort in the fact that the official inflation rate is only a little over five percent,” de Sousa concludes.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
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