Vanguard’s Research on Commodities as an Inflation Hedge
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This article is reprinted with permission from SmartAsset.
Research from Vanguard suggests that investing in commodities is the most powerful way to hedge against unexpected inflation. Pointing to a concept known as inflation beta – an asset’s predicted reaction to a unit of inflation – Vanguard found over the last decade that commodities rose between 7% and 9% for every 1% of unexpected inflation the economy experienced.
The Vanguard research, which examined the historical returns of the Bloomberg Commodity Index, comes as national inflation has reached levels not seen in more than a decade. The Consumer Price Index recently surged to its highest point since Summer 2008, rising 5.4% in the 12-month period that ended in July.
While markets factor a certain level of inflation into the price of assets, unexpected inflation can wreak havoc on portfolios by diminishing investors’ purchasing power, making effective inflation hedges all the more valuable.