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Inflation: Strategies to guard your retirement account


When we hear the phrase, “the dollar doesn’t go as far as it used to,” we can often conjure up pictures of the distant past. But in reality, one needs only to glance back at recent history to see the effects of inflation on the value of the dollar. Consider this illustration: If you were to spend $20 on a good or service in 1989, the same purchase would cost you almost $35 today* — a large difference in such a short span of time. In fact, inflation’s dreary impact can be seen in a snapshot of any 20-year period. This confirms what we already know; inflation is a long-term reality. So to help you plan for the future, we’ll review some of the most commonly suggested hedges against inflation.

Stocks. While inflation can have a negative impact on equities in the short run, generally, stocks are known to offer inflation protection over longer time periods. For example, the historical trends of the S&P 500® reveal that between 1926 and 2008, the annual return for stocks was nearly 9.7%, which clearly outpaced the annualized inflation rate of 3% for the same time period. Certainly, your time horizon needs to be considered with this option, but in the long term, equities may be a good inflation protection for your portfolio.

Inflation Protected Bond Fund (IPBF). GuideStone Funds’ IPBF may be a good hedge against inflation because as inflation increases (as measured by the Consumer Price Index) the principal value increases. However, it’s not immune to volatility, and the value may decrease should a period of deflation occur. So while a direct investment in the IPBF can work well as a portion of a well-balanced portfolio, it should not be considered a safe haven. It’s also important to note that those who hold shares in the Conservative Allocation Fund already have a portion dedicated to the IPBF, and it has been factored into our MyDestination Funds®. Learn more about this Fund.

Commodities. Often the most advertised hedge against inflation, commodities such as gold, oil and natural gas must be approached with careful discernment. For example, a substantial investment is usually required to purchase commodities, and many gold-selling scams continually flood the marketplace. Consider, too, the dangers inherent in commodities.

Short-term investments. Consider this: If you purchase a 10-year Treasury note with a 4% interest rate before an inflationary period, you’ll miss out on the interest rate increase because you’re locked in at 4% for 10 years. Additionally, if you wanted to sell your bond, you would have to do so at a discount. However, by selecting shorter-term investments (1-year, 3-month, etc.), you’re able to get out faster, which allows you to reinvest and take advantage of higher rates during a period of inflation.

Use our calculator to see how inflation may affect your portfolio in the future. Also, keep in mind that while exposure to some of these investments may help your portfolio hedge against inflation, volatility is a reality with any of these options. Careful planning is the key, and a healthy portfolio should be widely diversified with a long-term objective, which can help it persevere through a myriad of market conditions.

You should carefully consider the investment objectives, risks, charges and expenses of the funds before investing. For a copy of the prospectus with this and other information about the funds, call 1-888-98-GUIDE (1-888-984-8433) or visit www.GuideStoneFunds.org to view or download a prospectus. You should read the prospectus carefully before investing.

Shares of GuideStone Funds are distributed by BNY Mellon Distributors Inc., 760 Moore Road, King of Prussia, PA 19406.

* http://www.usinflationcalculator.com