Inflation is no longer transitory. It is here! Last month, the consumer price index (CPI) rose 7.9%. That was the largest price increase since January 1982. These are price increases that many people have not experienced in their lifetimes.
But have on mind, that February CPI reading was recorded before Russia invaded Ukraine. Since then, the inflationary situation has only gotten worse. The price of U.S. crude skyrocketed to nearly $140 per barrel intraday as the U.S. banned imports of Russian crude, liquefied natural gas and coal. Inflation is still on the rise, and everything from automobiles and gasoline to food, pet supplies and even toilet paper is being affected.
But there are ways to adjust your portfolio in this type of environment:
1. Gold is a must in any diversified portfolio and should be increased in times of inflation. It is the classic inflation hedge. Gold has been outperforming the S&P 500 over the past year and should continue to do so in this environment. Additionally, recent broader market volatility in 2022 has created a perfect safe haven environment for gold. And gold performs well when the Fed raises rates.
2. Some part of your overall portfolio should always be invested in commodities and in current situations, this asset class should be increased. Crude oil is up more than 60% year to date, Wheat is up over 40%, Soybean oil is up over 30%. Lean hogs, corn and palladium are all up more than 25%.
The rising price of commodities is caused by inflation. So it makes sense in an inflationary environment to use a part of your money to work the sector. Ideal vehicles are broader exchange-traded funds, iShares S&P GSCI Commodity-Indexed Trust (NYSE: GSG) or the iPath Bloomberg Commodity Index Total Return ETN (NYSE: DJP) or more specific commodity ETFs like the Aberdeen Standard Physical Palladium Shares ETF (NYSE: PALL) or the Teucrium Corn Fund (NYSE: CORN).
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