Inflation-Dampening Investments

Protecting participants’ purchasing power

Including investments designed to protect against inflation in your investment menu may protect participants’ purchasing power in retirement.

Offering a broad range of asset classes

A few examples of asset classes used to reduce the impact of inflation include fixed income, real estate investment trusts (REITs), natural resources and commodities.

Helping you find the right fit for your plan

Plan sponsors have a broad range of choices for how to incorporate investments designed to protect against inflation into their plan’s menu. These include target date or balanced funds, multi-asset class stand-alone funds and single-strategy funds.


 

Protecting Participants’ Purchasing Power

Including a solution designed to protect against inflation as part of your defined contribution menu may provide your participants with the following additional benefits:

  • Improved risk-adjusted returns for the overall portfolio
  • Additional sources of income

 

How Can You Include Investments Designed to Protect Against Inflation in Your Menu?

We can work with you to evaluate the best strategy to provide investment choices designed to protect against inflation for your participants. Some of these may include target date or balanced funds, multi-asset class stand-alone funds or single-strategy funds.

 

Investment Options

Investing in REITs involves certain distinct risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. REITs are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs, especially mortgage REITs, are also subject to interest rate risk (i.e., as interest rates rise, the value of the REIT may decline). 

Investing in commodities entail significant risk and is not appropriate for all investors.  Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

There are major risks associated with investing in the natural resources sector, including large price volatility due to non-diversification and concentration in natural resources companies.