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VIEWPOINT: A New World of Investing: Combating Inflation through Innovative Strategies

By Tamer Elshourbagy

Date:

When it comes to investing, there have been a set of standard practices that have benefited long-term investors. That being said, in our current economic climate, where inflation rates are at an all-time high and the average American holds more than $90,000 in debt, investors have had to turn to new, modern ways to invest for the future.

Outside of a traditional investment portfolio, there are numerous ways to secure a strong financial future and help offset the rising cost environment. 

I-Bonds

These are savings bonds issued by the U.S. Treasury with an adjustable interest rate based on the consumer price index (CPI) to keep pace with inflation. Today, the interest rate on new Series I savings bond is 9.62 percent. You can purchase up to $10,000 (per Social Security number) in each calendar year by opening an account on treasurydirect.gov. If you happen to cash the I-bond before five years, you only lose the prior three months of interest. 

Corporate Bonds

As interest rates jumped considerably from the lows of the pandemic, income-producing debt on high quality corporate bonds are becoming more attractive. Corporate bonds are debt issued by businesses to fund growth in areas such as capital expenditures and acquisitions. As an example, the ICE BofA AAA US Corporate index, a broad measure of highly rated US corporate debt, has an attractive effective yield of about 3.6 percent. While bonds are subject to price fluctuation, coupon payments provide a steady stream of income for bond holders.

Real assets

Income-generating investments in real estate can provide a buffer in a rising-rate environment. For example, real estate in areas such as apartment buildings have generally offered attractive levels of income. Rent prices in the U.S. are averaging a 14 percent year-over-year increase allowing investors the opportunity to experience higher income. Publicly traded real-estate investment trusts (REITs) allow the average investor opportunities for investment in such markets. 

High-Yield Savings Account

These are the best places to maintain an emergency fund, or somewhere to easily access money while it also grows and generates a small return. However, before utilizing one of these accounts, make sure the host institution is FDIC insured. 

Certificates of Deposit (CDs)

These are considered short-term to medium-term investments as they are harder to get into than a high-yield savings account and capture more growth. These are issued by an FDIC bank at a higher fixed interest rate than the average savings account; however the funds cannot be accessed ahead of the maturity date without penalty. 

Exchange-Traded Funds (ETFs)

ETFs continue to grow in popularity and can be accessed through a brokerage account. They allow the investor to access a basket of individual investments. They invest in areas such as indexes, sectors, and commodities to name a few. Index ETFs track various indices such as the S&P 500, [Russell 2000, and NASDAQ 100] and offer diversification as well as low fees. Sector specific funds allow for the opportunity to invest in parts of the market experiencing pricing power such as energy companies.

Dividend Stocks

These are distributions, typically paid quarterly, to an investor that owns a shares in a company. Often times, investors take their dividends and reinvest the proceeds in their portfolio. Look for healthy dividend-paying businesses, invest in companies generating ample amounts of internally generated cash flow, and avoid businesses issuing shares and debt in order to fund dividend payments. 

Working with a qualified financial advisor can help take the guesswork out of major financial decisions. Whether you chose to invest through traditional strategies or want to incorporate some of the options above, it’s important to understand your investment time horizon and risk tolerance.                   


Tamer Elshourbagy is a VP and senior portfolio manager at Tompkins Financial Advisors, Central New York. 

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