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How to protect your investments from inflation

Inflation is at its highest rate in almost two decades, hitting 4.7 per cent in November as gas, food and housing prices continued their upward climb.

It’s understandable to be worried about your financial future when prices are rising at such a fast pace. Here’s how to shore up your investments to protect yourself from inflation.

“It’s on everyone’s mind right now,” said Ian Calvert, vice-president and principal at HighView Financial Group.

Calvert explained that inflation erodes your purchasing power over time, which is why you want your investments to at least keep pace with it, if not rise above it.

Those holding too much in cash or guaranteed investment certificates (GICs) with low interest rates may not meet that target, said Calvert, as the purchasing power of your cash will go down, and the interest rates on GICs are generally lower than the current high inflation rate. (However, there are a few GIC options that offer some protection against inflation.)

Inflation fluctuates in real time, but GICs and interest rates aren’t always quick to respond, said Calvert.

At least in the short term, you’re not going to see interest rates immediately adjust for higher inflationary periods, he said.

Similarly, fixed-income or bond investors can feel the pain of inflation too, said Calvert.

He recommends maintaining a diverse portfolio, but also turning your focus to “real assets,” such as real estate, infrastructure or commodities.

However, he noted that commodities are volatile investments, and don’t offer any income, unlike stocks that pay out dividends that can increase.

“If you own a portfolio of stocks and equities . . . having equity exposure during inflationary times can help protect it, while getting some dividend payments as well.”