---
title: Strategies for Investing During Inflationary Environments
description: When evaluating investment alternatives during periods of heightened inflation, there are several variables to consider.
image: https://blog.birchwoodfp.com/hubfs/Blog%20Images/My%20project.jpg
---
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# Strategies for Investing During Inflationary Environments
[Damian Winther, CFP® CSRIC®](https://blog.birchwoodfp.com/author/damian-winther-cfp)
Jun 2, 2022 7:30:00 AM
In the news and at the grocery store, you can’t help but notice how inflation has been off the charts during 2022. [According to the U.S. Bureau of Labor Statistics](https://www.bls.gov/opub/ted/2022/consumer-prices-up-8-5-percent-for-year-ended-march-2022.htm#:~:text=The%20Consumer%20Price%20Index%20increased,month%20advance%20since%20December%201981.), the U.S. inflation rate rose to 8.5% in March 2022, the highest since 1982 as measured by the Consumer Price Index (CPI).
## What is Inflation, and How is it Calculated?
Inflation is broadly defined as the rate of increase in the price of goods and services over a given period. There are two primary components of the market that generally experience significant price volatility–food and energy. As such, economists attempt to account for this when describing and measuring inflation so there is a broad measure people can agree on.
By excluding those volatile food and energy sectors and products where the government determines pricing, we are left with an economic measure commonly referred to as “core inflation.” Core inflation is what most economists and investment analysts reference when describing the United States economy and the price changes.
## Investing During Inflation
First and foremost, there is no silver bullet when investing during periods of heightened inflation. At Birchwood Financial Partners, we stress the importance of maintaining a diversified investment portfolio and avoiding emotional decisions, such as attempting to “time the market.” Instead, we believe in a balanced asset allocation approach where the goal is staying invested over all periods and market cycles.
When evaluating investment alternatives during periods of heightened inflation, there are several variables to consider. Here are a few examples that investors should take into consideration before making significant portfolio moves:
1. **Fixed Income Yields**
Be sure to consider the difference between the short-and-long end of the yield curve. If the government is implementing contractionary monetary policy (i.e., raising interest rates), you’re likely to see a decrease in the price of your fixed-income assets. Conversely, as interest rates decline, your fixed-income assets will likely increase in price. For fixed-income investors, it’s important to remember this inverse relationship between a bond’s yield and price. Not only do current interest rates need to be taken into account, but investors also need to take into account future interest rate expectations and liquidity needs ( for instance, how long will the bond be held).
2. **Dividend Yield and Price Volatility in Equities**
Compare the dividend yield on different equity sectors to the price volatility of the companies in these sectors to get a better sense of whether or not specific equities make sense to hold during periods of elevated inflation. Historically speaking, certain sectors tend to perform better during periods of heightened inflation, whereas other sectors experience increased volatility. Remember, the return generated by holding equities is calculated by taking into account two variables: the dividend yield and the stock's price change.
3. **Savings Accounts & CD Rates ****
**What are high yield savings accounts and certificates of depositing returning to investors? Are you gaining or losing purchasing power when comparing the yield to inflation? For example, if you can put your money in a savings account that yields 1%, you may think you’re in good shape. However, while your balance didn’t decrease, you effectively lost 7.5% in purchasing power when Core Inflation is coming in at 8.50%!
4. **Commodities **
Many investors tend to think of gold and precious metals as a safe haven during inflationary periods. While I’m not suggesting commodities aren’t a good investment, I encourage you to think about how you are getting your commodity exposure. For example, do you physically hold gold or precious metals, or are you investing in a company that operates mining operations to find these assets? Bottom line, be sure you know how you are achieving your desired level of exposure.
5. **TreasuryDirect**
If you are interested in holding Series I Savings Bonds and Series EE Savings Bonds, consider purchasing these directly through [www.TreasuryDirect.gov](http://www.treasurydirect.gov/). The yield on these bonds will change over time, so you will want to stay apprised of what’s going on in the market, including interest rates, to decide if it’s for you.
Diversification is critical in maintaining a well-balanced investment portfolio. We don’t recommend concentrated portfolios or market timing. We don’t know what we don’t know and believe in helping clients stay diversified, balanced, and nimble.
At Birchwood Financial Partners, [we work with our clients to help them feel empowered and knowledgeable](https://www.birchwoodfp.com/thebirchwoodprocess) about their financial decisions each day. We welcome you to [connect with our team](https://www.birchwoodfp.com/our-team) to learn more about our firm, our services, and the clients we serve.
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Topics: [Investment Management](https://blog.birchwoodfp.com/topic/investment-management), [Damian Winther](https://blog.birchwoodfp.com/topic/damian-winther)
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