2 . Inflation Can no Longer Be Ignored — Especially if You Rely on Investment Income .
Inflation has hardly been a top concern for most investors lately , but that should change in 2017 . Preserving purchasing power is particularly important to investors who are in or close to retirement .
When drawing retirement income to cover everyday expenses , you want to ensure that you are able to do so in a sustainable way that reflects rising costs for things like food and gas .
Of course , how much dedicated inflation protection investors in or near retirement need will vary with their particular financial circumstances . Tolerance for risk is another important consideration .
3 . One Simple Idea for Investors Seeking to Preserve Purchasing Power .
My focus here is on bonds , though it ’ s important to acknowledge there are parts of the stock market that have fared well in some past episodes of rising inflation , such as stocks in the health care sector .
By the same token , it should also be remembered that no two periods of inflation are the same . Inflationary factors can combine in a variety of ways that have quite different outcomes for stock returns . For instance , financial stocks did relatively well in the period 1999 to 2001 , when the unemployment rate fell below 4 % and oil prices surged . On the other hand , between 1978 and 1980 , oil prices also skyrocketed , while unemployment was mostly in the 6 %– 7 % range and financials lagged .
When it comes to bonds , however , there ’ s good reason to believe that including Treasury Inflation-Protected Securities ( TIPS ) in an investment mix can be helpful . TIPS are bonds backed by the full faith and credit of the United States government . Unlike standard Treasuries , the value of TIPS generally moves up with rising inflation . Importantly , if there ’ s negative inflation ( known as deflation ) over the life of a TIPS bond , the investor is guaranteed to receive the initial amount paid for the bond .