Ask The Hammer: How Will Rising Inflation and Interest Rates Affect My Portfolio?

Key Takeaways

• Create a written investment policy statement (IPS) that documents your investment philosophy and rules—whether tactical or strategic—so you have something to reference when emotions run high during market volatility.
• If you're tactical and expect inflation to rise, implement specific hedges: use TIPS, shorten bond maturities from 7 years to 5 years for liquidity, and shift to inflation-resistant assets like real estate and hard assets.
• For strategic investors concerned about inflation, make subtle adjustments within your existing allocation rather than major shifts—for example, reduce fixed income maturities slightly or keep more cash, understanding that everything involves trade-offs.
• Focus on your time horizon: if you need money sooner, be more conservative; if you have 10+ years, historical data shows markets almost always recover, so avoid panic-selling during downturns.
• Markets are unpredictable in the short term (daily/yearly predictions are barely better than 50/50), but over 10-year periods they're highly likely to be up—so adopt a long-term view and stick to your predetermined strategy rather than reacting to current events.