• Beware of long-term bonds – both corporate bonds and U.S. Treasuries. You don't want to be locked in at a rate of 2 percent when inflation rises and stays at 3 or 4 percent.
• Buying stocks – perhaps. Over periods of inflation, stocks can generally offset the ravages of inflation by going up in price along with everything else. However, the market outlook for the next few years portends low returns. After an increase in inflation, net returns might be even lower.
• Real estate. The cloud that's been hanging over real estate for the last few years has begun to clear. Prices have begun inching upward now that more foreclosed properties are being purchased. Mortgage interest rates remain historically low, promising to spur sales. This could increase demand and nudge prices upward.
No single defense against inflation will necessarily immunize your portfolio, but a combination of moves can make a difference.
Increasing inflation is like rain: It's going to happen – you just don't know when. When girding your portfolio against inflation damage, however, should be careful not to overdo it. This could mean missing out on gains you might otherwise take before inflation increases actually kick in. At the same time, you should remain flexible so you don't get caught in inflation's vice.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
Ted Schwartz, a Certified Financial Planner®, is president and chief investment officer of Capstone Investment Financial Group. He advises individual investors and endowments, and serves as the advisor to CIFG UMA accounts. Because Schwartz has a background in psychology and counseling, he brings insights into personal motivation when advising clients on achieving their wealth management goals. Schwartz holds a B.A. from Duke University and an M.A. from Oregon State University. He can be reached at firstname.lastname@example.org.