Consumers continue to feel the impact of inflation on their budgets. The February Consumer Price Index, which tracks the cost of consumer goods and services, showed a 2.4% increase over the past 12 months.
Additionally, the U.S. war with Iran and its impact on energy prices, as well as the continued impact of U.S. tariffs, could cause prices to rise significantly for the remainder of this year, according to a global policy organization. In a March report, the Organization for Economic Co-operation and Development predicted an all-commodity inflation rate of 4.2% in 2026.
That’s a sharp increase from the group’s previous forecast of 2.8% and well above Federal Reserve officials’ latest forecast of 2.7%. The OECD, a cooperative forum of 37 governments, is considered an authoritative source of policy analysis and economic data by the U.S. government.
For investors, periods of high inflation are generally seen as a problem. As your portfolio grows over time, inflation sneakily grows along with it, eating away at the value of your savings.
“The main thing we need to remind our clients is that inflation is quietly eroding purchasing power,” said Jun Eum, a certified financial planner at financial firm Secure Tax and Accounting. When it comes to a few percentage points in the CPI, “even small differences matter,” he said.
How inflation affects your portfolio
While short-term inflation expectations can have a significant impact on spending and temporarily disrupt markets, it’s important to keep your long-term portfolio strategy independent of them, says Doug Bonepers, CFP and founder of Born Fied Wealth.
“Short-term inflation noise is just noise,” he says. “It’s noise. The bigger mistake investors make is reacting to it.” “Selling stocks because of CPI results or drastically changing your portfolio based on a month’s worth of data is typically how people hurt themselves by investing in the market.”
The OECD predicts that the spike in inflation will be short-lived. The agency expects U.S. inflation to recede to 1.6% in 2027, lower than the Fed’s 2.2% forecast and 2% below the central bank’s long-term target rate.
But experts say it’s important to remember that inflation will continue throughout your investing career. Being prepared to overcome negative financial impacts should be one of your top priorities, says Bonepers.
“Inflation leaks slowly, which is why people underestimate the damage it causes,” he says. “You don’t feel it on a day-to-day basis, but after 20 or 30 years, your purchasing power may decline.”
Consider the classic “Rule of 72,” a money formula that’s been around since at least the late 1400s. Investors have often used this as an easy way to estimate portfolio growth. Simply divide 72 by the annual rate of return you expect to earn on your portfolio to find the number of years it will take for your investment to double. For example, if you expect an 8% return, your portfolio should double in value every nine years.
Given this equation, you might look at your portfolio now and think about the wealth you’ll accumulate by the time you retire. However, keep in mind that this formula also works in reverse. Divide 72 by your expected long-term inflation rate to find out how long it will take for your purchasing power to be halved. At the current rate of 2.4%, this would occur every 30 years. 4.2% is a rate that occurs approximately every 17 years.
So it’s important to think about your savings in terms of what you can actually afford in the future, says Jim Shagawat, CFP at advisory firm AdvicePeriod.
“A car that costs $40,000 today will be worth about $80,000 in 24 years if inflation is 3%, but it will reach that same price in just 18 years if inflation is 4%,” he says. “Small differences in inflation add up to large differences in lifestyle.”
Stay ahead of price increases
To stay ahead of the curve, Bonepers says it’s important to consistently invest in a diversified core stock portfolio over the long term and avoid leaving too much money in low-yield cash accounts.
“Obviously there are instances where inflation crushes everything, but equities have an opportunity to beat that,” he says. “You can see that by getting a greater return on investment than what a risk-free asset would provide.”
If you’re particularly uncomfortable with inflation, it may be worth talking to your financial advisor about adding assets that can be considered a “hedge” against rising prices, he says. For bond investors, this may include Treasury inflation-protected securities, bonds that increase in value with the CPI.
Some inflation-conscious investors may prefer gold, real estate or even Bitcoin, Bonepers says. Whether you like it or not, if adding a little inflation sleeve to your overall portfolio helps you stay invested and get a good night’s sleep, “there’s nothing wrong with that,” he says.
“Addressing psychological behavior in a long-term portfolio is key to consistency,” he says.
When thinking about long-term goals, it’s important to keep in mind that what you want and have to pay for in the future can have vastly different price tags, says Um.
“We’re also seeing clients underestimate the impact of inflation on their retirement spending, especially healthcare and day-to-day expenses,” he says. “At the end of the day, inflation is more than just a number, it has a direct impact on your lifestyle, so you should build your portfolio with that in mind.”
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