Is Your Portfolio Ready for Inflation?
When rising prices are affecting your budget, you might be tempted to take another look at your day-to-day expenses. But inflation can also affect how you save and invest for the future. Are you prepared?
Inflation’s Effects
Even low inflation will cut into the future purchasing power of your savings and investments. Over the past two decades, inflation has averaged about 2.5%, and the rate is currently more than 3%.* That means your investment plan needs to account for real returns, that is, your investment returns adjusted for the higher rate of inflation, to ensure you can still meet your goals.
Your Inflation Goal
You’ll need to evaluate your current portfolio plan to determine your next steps. Will you try to break even so the inflation rate doesn’t cut into your returns? Do you need a specific income level or a plan for growth potential? Do you already have inflation hedges built into your portfolio?
Answer a few questions to help focus your inflation efforts.
What’s Your Investing Time Frame?
Inflation Concerns: Low to Medium
You’re at the beginning of your career and have many years for your portfolio to grow.
Rising prices tend to affect individuals’ short-term budgets more than their long-term investments.
With a longer time frame, younger investors can often tolerate a higher percentage of stocks, which may help keep their portfolios growing ahead of inflation.
Inflation Concerns: Medium to High
You’re still working and contributing to your portfolio, with less than 20 years to retirement.
Investing heavily in stocks can potentially outpace inflation but increases market risk when there’s less time to recover from a downturn.
Investing mostly in fixed income (or bonds or cash equivalents) may avoid major market risk but may not keep up with inflation.
Inflation Concerns: High
You’ve transitioned from full-time work to relying on your savings and investments for income.
Pension payments or other fixed-income sources might not rise with inflation.
More conservative investments (like bonds) can be more sensitive to inflation.
A current nest egg could be depleted faster when prices for necessities are rising.
What’s Your Investing Time Frame?
Source: American Century Investments. The examples indicate general inflation scenarios and do not account for your individual circumstances.
How Could Inflation Affect Different Portfolio Mixes?
Inflation Concerns: Low to Medium
Your portfolio is built for long-term growth potential.
The long-term growth potential of stocks may outpace the inflation rate but can leave investors vulnerable to market downturns.
All stocks are not created equal: Some could be better positioned for downside risk or offer pricing power during higher inflation.
Inflation Concerns: Low to Medium
You have a mix of stocks and fixed income (bonds and cash equivalents) to balance various investment opportunities and risks.
A portfolio of stocks and bonds may help weather market ups and downs but still may not account for inflation risk.
Potential inflation hedges include TIPS, commodities, gold and real estate.
Inflation Concerns: High
You have a conservative portfolio mostly made up of traditional bonds.
When inflation rises, bond prices tend to fall.
An exception: Inflation-adjusted bonds (such as Treasury inflation-protected securities, or TIPS) are linked to the inflation rate.
Without a stock allocation, a bond portfolio might not provide the growth potential needed to stay ahead of inflation.
How Could Inflation Affect Different Portfolio Mixes?
Don’t see a good representation of your portfolio?
Let’s talk about what inflation could mean for your situation.
What’s Your Inflation Priority?
Inflation Goal: Beat Inflation Through Growth
You plan to use investments with higher growth potential to beat inflation.
Does your current portfolio support this goal? Learn more about long-term growth solutions to help you outpace inflation.
Inflation Goal: Generate Income to Outpace Inflation
If you rely on investment income, you need to outpace inflation to protect purchasing power.
Does your current portfolio support this goal? Learn more about solutions that may help generate income during periods of higher inflation.
Inflation Goal: Preserve What You Have
You want to keep what you have, without introducing more risk into your portfolio.
Does your current portfolio support this goal? Learn more about solutions to help you keep pace with inflation.
What’s Your Inflation Priority?
Not Sure of Your Next Steps?
Learn more about inflation strategies, or talk through your options with us.
Source: U.S. Bureau of Labor Statistics. The annual inflation rate for the 12 months ending July 2026 was 3.4%, and the average inflation rate from 2006 to July 2026 was 2.6%.
Generally, as interest rates rise, the value of the bonds held in the fund will decline. The opposite is true when interest rates decline.
Diversification does not assure a profit nor does it protect against loss of principal.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.