How to Protect Your Savings from Inflation

The Federal Reserve generally considers an inflation target of 2% as acceptable to maintain a healthy economy. Based on this target inflation rate, your savings will decease in real terms by 2% every year. To overcome this depreciation your savings will need to grow at 2% annually to maintain your spending power.
If inflation is higher than 2% annually, the buying power of your savings declines more rapidly. To protect your investments against this uncertainty you should consider your investment asset allocation to stocks and bonds and gold.
Asset allocation is a primary driver of a portfolio’s performance over time. Generally stock returns usually are higher than the rate of inflation.
For investors in their 50s the asset allocation should be the as follows:
Stocks: 60%-80%
Bonds: 15%-35%
Gold: 5%-10%

For investors in their 60s the asset allocation should be:
Stocks: 40%-60%
Bonds: 25%-45%
Cash: 0%-10%
Gold: 5%-10%

TIPS – Treasury inflation protected securities and higher-yielding bonds have done well in periods of inflation. TIPS protects your investment in the following way: Each year the US Treasury adjusts their Par Value based on the consumer price index, a measure of inflation. Indexing the bond’s value to inflation helps protect investors from an erosion in purchasing power. The interest payments are also adjusted for inflation each year. Although the interest rate remains constant over the duration of your TIPS, the interest payment is based on the TIPS’ current value, meaning they effectively increase with CPI.

Best ETFs to Fight Inflation:
1. Franklin Responsibly Sources Gold ETF (ticker: FGLD):
This ETF group invests in companies that have sourced gold from LBMA accredited refiners that demonstrate efforts to respect the environment and combat money laundering, terrorist financing and human rights abuses.
Gold has a low correlation to traditional stocks and bonds.
2. iShares Global Infrastructure ETF (ticker: IGF) :
This ETF fund’s aims are:
• Exposure to companies that provide transportation, communication, water and electricity services.
• Targeted access to infrastructure stocks from around the world.
• A global sector approach

3. Vanguard Short-Term Inflation Protected Securities ETF (ticker: VTIP)

This fund invests primarily in US Treasury Inflation Protected Securities with remaining maturities of less than five years.
The fund seeks inflation protection and income consistent with short-term US Treasury Inflation Protected Securities.
The fund follows as closely as possible the Bloomberg US Treasury Inflation Protected Securities (TIPS) 0-5 Year Index.
Designed to generate returns more closely correlated with realized inflation over the near term, and to offer investors the potential for less volatility of returns relative to a longer-duration TIPS fund.

4. FlexShares STOXX Global Broad Infrastructure Index Fund (ticker NFRA) :
The fund seeks investment results that correspond generally to the price and performance before fees and expenses of the STOXX Global Broad Infrastructure Index.
Fund Holdings as at October 6, 2023.

5. Invesco Optimum Yield Diversified Commodity Strategy No. K-1 ETF (ticker PDBC) :
This ETF is an actively managed ETF invests in commodity linked futures and other financial instruments that provide economic exposure to a diversified group of heavily traded commodities.
The Fund seeks to provide long-term capital appreciation using an investment strategy designed to exceed the performance of DBIQ Optimum Yield Diversified Commodity Index Excess Return™ (DBIQ Opt Yield Diversified Comm Index ER) (Benchmark), an index composed of futures contracts on 14 heavily traded commodities across the energy, precious metals, industrial metals and agriculture sectors.

6. FlexShares Morningstar Global Upstream Natural Resources Index Fund (ticker GUNR) :
This fund seeks to duplicate the returns of the Morningstar Global Upstream Natural Resources Index.
FlexShares Morningstar Global Upstream Natural Resources Index
Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar Global Upstream Natural Resources Index (Underlying Index).

7. Vanguard Consumer Staples ETF (ticker VDC) :
This fund seeks to replicate the performance of the MSCI US Investable Market Consumer Staples 25/50 Index
Seeks to track the performance of the MSCI US Investable Market
Consumer Staples 25/50 Index.
• Multi-capitalization equity in the consumer staples sector.
• Employs a passively managed, full-replication strategy when possible.

Conclusion:
There are many ETFs from which to choose from in protecting your investment portfolio. ETFs are efficient in that they could be sold in the market at any time without waiting for any third party valuation. Low MERs make it even more attractive.