An inflationary environment is very difficult for all financial assets. It is hardest on fixed income, since interest payments are fixed on the bulk of debt securities. Equities have in the past shown an ability to generate positive rates of inflation-adjusted, or real, return in inflationary environments, due to the ability of corporations to pass on at least some of the increases in input costs to selling prices. However, equities too have a much more difficult time in periods of increasing inflation.
In light of the inflationary backdrop, we have encouraged investors to reduce holdings of bonds, which do very poorly in inflationary environments.
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