How Inflation-Spooked Traders Plan to Protect Their Portfolios
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Inflation has some investors running scared.
Nearly nine out of 10 traders (88%) are concerned about inflation, according to Charles Schwab's latest trader sentiment survey. Inflation is now at a 40-year high, with consumer prices surging 7.5% in January compared to a year earlier. Costs are rising for everything from groceries to cars to rent to your next Chipotle run — so it makes sense investors are worried.
Schwab found that 19% of the survey respondents said inflation was their top concern. Other top concerns were a market correction (14%), interest rate increases (13%) and the political landscape (11%). For this survey, traders are defined as Charles Schwab and TD Ameritrade investors who make more than 80 stock trades or more than 12 options trades, or make futures or forex trades over the course of the year.
Worried traders aren't just sitting around. They're planning to take action: 33% of respondents said they expect to buy real estate or real estate investment trusts (REITS) in 2022 as a hedge against inflation, while 26% said the same for cryptocurrencies or crypto-related products, 23% for gold and 16% for international stocks.
However, traders weren't planning similarly defensive moves to hedge against further market setbacks due to Covid-19. While more than half of the respondents indicated that they are concerned about the potential market impacts of Omicron and other Covid-19 variants, two-thirds of them aren't changing their trading strategy because of those concerns.
Protect your investment portfolio from inflation
If you're also spooked about what rising prices could mean for your investment portfolio, don't panic.
Wall Street has several investments it tends to pitch as hedges against inflation, including stocks, REITS, commodities, gold and crypto. If you're especially worried, you may want to consider Series I Savings Bonds or "I bonds," as the interest rate on these bonds is based on the Consumer Price Index (CPI) and they're designed to keep your savings safe from inflation.
While all these investments have their benefits, you don't want to overload your portfolio with any one of them. You can read up on the advantages and disadvantages of each in Money's story on protecting your investment portfolio from rising prices.
Remember: Your portfolio should be specific to you, and based on your financial situation, risk tolerance and age. And a well-diversified portfolio invested for the long-term should be able to weather the storm of volatility that inflation may bring.
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