Forbes: Low Returns and Inflation Can Cause Trouble For Investors

Due to rising energy prices, rising labor costs and the possibility of protectionist policies in America, there is a significant chance inflation will accelerate. While there is an upside to inflation, it can also erode investors’ real returns and compound what are expected to be low returns in public markets. WE Family Offices Managing Partner Santiago Ulloa addresses this topic in an article he wrote for Forbes as part of his participation in the Forbes Finance Council.

“Even though a vast majority of economists do not foresee a probability of hyperinflation, a period of accelerating even moderate inflation can present significant headwinds to investors’ capital preservation goals and cash needs in a low-return environment,” writes Ulloa. “It is clearly important to consider how to invest in protecting oneself during a period when inflation is ascendant.”

In the article, Ulloa outlines what investors can do to offset the headwind of inflation. First, Ulloa recommends investors consider assets of which prices adjust upwards for inflation and therefore protect against a loss of purchasing power. For investors who can handle illiquidity, another option is to invest in funds of managers who are making direct loans at variable rates that may rise with interest rates and inflation. Finally, he explains why inflation-linked bonds can be an appropriate option for more conservative investors.

“With appropriate planning, diversification and an appropriate allocation to inflation-resistant assets, investors can improve their chances of meeting their goals even in this lower return environment,” Ulloa concludes.