What if I told you the storm of the century was heading your way, and the last time a storm like this came through half a century ago, everyone’s basements flooded?

What would you do with all those family pictures and other valuables you currently have stored in cardboard boxes in the basement? Would you take precautions and put the pictures in sealed plastic bags or containers? Or move them to higher ground? You would do something to protect those precious family assets, right?

Now, what if I told you a major financial storm is coming? What if I told you it might already be here? The storm that I am referring to is inflation, and the first signs of runaway inflation are already here.

In the past few months, we’ve already seen the first drizzles of what is developing into a much bigger downpour.

In June, inflation was at its highest rate since 2008, and the jump from May to June was also the biggest month-to-month increase since 2008. In other words, inflation is not only at alarming levels, but it’s accelerating – not slowing down. And don’t expect this storm to pass quickly. Some experts are saying inflation is here to stay and not going away any time soon.

Is your portfolio protected from the incoming inflation storm? Inflation is to stocks as flooding is to those cardboard boxes. It’s not good for a traditional portfolio.

Stocks are highly vulnerable to inflation for two reasons:

• Investors are spooked by the talk of inflation and can cause a run on stocks even before any real economic effects show up on company balance sheets.
• Rising interest rates from Fed intervention to slow inflation will eventually slow business borrowing and production, putting downward pressure on sales, company bottom lines, and stock prices.

To protect your portfolio from inflation, you will need to replace your cardboard stocks with storm-proof assets.  

What type of assets can withstand the inflation onslaught? Cash-flowing assets that are able to keep pace with inflation.

Not all cash-flowing assets will keep pace with inflation. As prices rise and buying power is diminished, consumers will start being more discerning about their spending – prioritising away from luxuries towards necessities. ​​Essential assets – ones vital to sustaining life such as food, shelter, and fuel – with prices that rise along with inflation but without a drop in demand are ideal buffers against inflation.

An asset with inelastic demand where price increases don’t result in a drop in demand is ideal for countering the corrosive effect of inflation on buying power. Inflation will erode the buying power of workers as their wages can buy less and less. Still, investors with the right assets in their portfolios can compensate for diminished wages with bullet-proof passive income.

​​Take, for example, certain segments of real estate. Some segments like senior housing can command higher rents due to inflation without a drop in demand because the number of seniors needing housing is not expected to wane anytime soon, with millions of baby boomers expected to retire in the coming years. ​​Imagine multiple streams of this type of passive income? You will have nothing to fear in the face of inflation.

Runaway inflation is at our doorsteps. How will you protect your portfolio?

Will you do nothing and let inflation wipe away your assets, or will you take preventive measures by investing in assets that not only insulate income from inflation but that thrive and keep pace with inflation – guaranteeing continued income that will compensate for diminished buying power?