Protecting Your Retirement Portfolio Against Inflation
CNBC Senior Commodities Correspondent & Personal Finance Correspondent
Until now, Fed Chairman Ben Bernanke has indicated that inflation appears to be under control here in the U.S. and recent spikes in commodity prices are only temporary. But a group of panelists who spoke with CNBC disagreed and suggested that investors, particular those at or near retirement, start planning now to ensure higher costs don't eat away at their savings.
"One of the things Boomers have to do is own the trade. If energy is more expensive, they probably should have a larger portion of that in their portfolio. If they're concerned about food being more expensive, the same," says senior portfolio manager Frank Troise, who oversees the Soho Global Value Fund.
Troise suggests investors buy the SPDR Energy Select exchange traded fund and SPDR Gold Trust, the largest precious metal ETF.
Ivory Johnson, director of financial planning at Scarborough Capital Management, believes that the consumer price index would show inflation is nearly 10 percent, if it was calculated in the same manner as it was in 1980. He advises clients to allocate at least one-fifth of their portfolio to gold and precious metals.
"How do you protect yourself against a weakening dollar? Precious metals and gold goes a long way," Johnson said. That's why you've seen gold prices have doubled in the last four years, while the S&P 500 is about even par."
Troise, who runs a balanced fund that allocates 60 percent of its holdings to stocks and 40 percent to bonds, says: "The mantra in buy and hold in fixed income is gone. Ironically as fiduciaries today we actually have to recommend to clients that they take on a higher risk posturing in their portfolio."
But investors should be wary of loading up on equities and alternative asset classes, says Doug Lockwood, a certified financial planner and partner with Harbor Lights Financial Group.
"If rates are on the rise, and we're afraid of bonds, that doesn't mean we can't buy Treasury-inflation-protection-securities (TIPS), that doesn't mean we can't shorten our duration to reduce the bond risk."