Sticky inflation is currently posing a significant worry to investors. High price levels and elevated interest rates could be devastating for stock markets.
Given this backdrop, quality inflation-protected bond ETFs Schwab U.S. TIPS ETF (SCHP – Get Rating), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP – Get Rating), and iShares TIPS Bond ETF (TIP – Get Rating) could be wise portfolio additions during turbulent times.
Inflation and its concerns have dominated the headlines over the past two years. The Consumer Price Index (CPI), a key barometer of economic health, has significantly reduced after its summer 2022 peak, which marked a forty-year record high of 9.1%. In October 2023, the CPI was flat from the prior month and rose 3.2% annually, below the Wall Street estimates.
Lower fuel costs mainly catalyzed October’s declining inflation level. A surge in oil demand, coupled with the supply tightening induced by OPEC+ production cuts and the ongoing Israel-Hamas conflict, could skyrocket crude prices. Due to its volatile nature, gasoline prices can readily skew inflation measurements.
Inflation may remain elevated over an enduring timespan than the projections made by financial markets. Since inflation currently towers well above the Fed’s 2% target, interest rates could remain elevated. This could depreciate the purchasing power of cash reserves over time and erode fixed-rate bond returns. Hence, maintaining asset holdings that could serve as a buffer or shield against inflation is crucial.
Combining different inflation-resistant Exchange-Traded Funds (ETFs) with a correlation to the CPI can safeguard a portfolio against wealth erosion while enhancing its resilience.
Considering these conducive trends, let’s look at the key attributes of…
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