Although the Federal Reserve said that the ongoing growth in inflation is temporary, investors still need to get used to higher price pressures and adjust their traditional portfolio allocation. WisdomTree head Kevin Flanagan even said they should include real assets such as gold.
Aside from that, Flanagan stated that he sees a stable beyond 5% inflation over time, so the rate should not fall below 2%. He projects that it will fluctuate between 3-4% amid massive stimulus from both the central bank and the government.
Considering this, many expect the Fed to ultimately tighten its monetary policy and cut its monthly bond buying program.
10-year US bonds are also predicted to fall to 2% by the end of the year. Flanagan said the recent rally in bonds is an example of technical correction.
But even if bond yields return to 2%, investors are still losing profit because of inflation. Thus, Flanagan said investors should be creative if they want to generate revenue from the market. For instance, the traditional 60/40 distribution is no longer a viable strategy, so investors should step up and perhaps begin using a different percentage: 70% equity, 20% fixed income and 5% alternative assets. Gold and real estate assets are also very attractive in the current environment.
