Inflation-Linked.com

Diversify Your Portfolio

Investors who understand the value of asset allocation seek to reduce the volatility of their portfolio returns through diversification among a variety of fairly priced asset classes. The driving concept behind this strategy is that by allocating funds to several investments whose returns are uncorrelated (i.e. they move independently of one another), chances are that in a year when some investments do poorly, some others may perform better than expected, thereby evening out overall performance in the long run.

The good news for such investors is that returns on inflation-linked investments have been shown to have a low correlation with either equities or traditional fixed-income investments, making them a valuable asset class addition to a diversified portfolio. In fact, inflation-linked instruments offer advantages over many of the other assets that investors may use to capture the effect of rising prices in the economy, such as real estate or commodities. First, they are readily available in denominations as little as $1,000, simplifying the reinvestment and rebalancing process. Second, because they track the price level of a broad basket of goods and services, they are less susceptible to shocks that may affect the value of other real assets.