QUESTION: With inflation proving more persistent than expected, how should advisors adjust client portfolios to hedge purchasing power risk over the long term?
RESPONSE: To hedge against purchasing power risk in an environment of persistent inflation, advisors might consider several strategies based on the recent news data:
- Diversification with Inflation-Resistant Assets: It’s advisable to diversify portfolios to include inflation-resistant holdings. This could involve allocating a portion of the portfolio to assets like commodities, real estate, or other alternatives that typically perform well during inflationary periods[1].
- Incorporating Alternative Assets: The inclusion of alternative assets such as crypto and real estate in 401(k) plans has been suggested as a way to potentially limit risk and create better outcomes for workers over the long term. This diversification can help protect against inflation by leveraging the performance of these assets within large endowments and pension funds[2].
- Strategic Asset Allocation: Crafting an asset allocation strategy that reflects a client’s comfort with risk is crucial. This strategy should empower clients to navigate volatility with confidence, which is particularly important in inflationary environments[3].
- Consideration of Short-Term Bonds: Given the ballooning U.S. national debt, short-term bonds might be a wiser choice as they are less sensitive to interest rate changes and can provide some stability in a volatile market[4].
By implementing these strategies, advisors can help clients better manage the risks associated with persistent inflation and protect their purchasing power over the long term.
References
[1] 5 Factors To Consider When Investing In A Changing World [Forbes] Consequently, investors should diversify portfolios to include inflation-resistant holdings. https://www.forbes.com/councils/forbesfinancecouncil/2025/08/08/5-factors-to-consider-when-investing-in-a-changing-world/
[2] Trump Order Opens 401(k)s To Crypto, Real Estate, And More [Forbes] Proponents of the change would argue that adding investment choices can create better outcomes for workers, citing the well-documented performance of alternative assets within large endowments and pension funds over the long-term, and noting the diversity of portfolios as a way to potentially limit risk for the long haul. https://www.forbes.com/sites/digital-assets/2025/08/07/trump-order-opens-401ks-to-crypto-real-estate-and-more/
[3] Three Ways To Leverage Your Relationship With Your Financial Advisor [Forbes] Instead, the key to long-term financial success lies in crafting an asset allocation strategy that reflects your comfort with risk and empowers you to navigate volatility with confidence. https://www.forbes.com/councils/forbesfinancecouncil/2025/08/05/three-ways-to-leverage-your-relationship-with-your-financial-advisor/
[4] Ballooning U.S. National Debt Makes Short-Term Bonds A Wiser Choice [Forbes] Market forces will likely dictate yield trends over the long term, and investors should prepare for potential volatility as sovereign risk grows. https://www.forbes.com/sites/danirvine/2025/07/31/ballooning-us-national-debt-makes-short-term-bonds-a-wiser-choice/