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Inflation and Investments

October 28, 2022 - 1 MINUTE READ

When it comes to inflation, the last few decades have been unusually tame compared to the rest of modern history. From 2000 through 2020, inflation averaged around 2.1% per year, as measured by the US Consumer Price Index (CPI).1  Interest rates also hit record-setting lows during that time as well. Looking back, those were great times for investors and borrowers but a rarity historically speaking. This may also explain why today’s 8.2% inflation rate feels so painful.

Inflation may be higher in the future than it has been in recent past, with themes playing out now that could contribute to inflation risks in the future. These include rising debt levels, demand on governments, geopolitical risks, and widespread again demographics.1 One way to hedge these inflation risks is to have a well-diversified portfolio, with a mix of stocks and bonds.

Diversification is defined as spreading your investments around so that your exposure to any one type of asset is limited.1  By doing this, this may help reduce the overall volatility of your portfolio over time. Even though stock and bond returns can be affected by inflation, they usually outpace short-term investments even when inflation has been high.

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