Inflation has started to rewrite the rules of investment
Price instability calls for other risk hedges as it snaps the usual link between the prices of stocks and bonds
Rising inflation in the US and around the world is forcing investors to assess the likely effects on both ‘risky’ assets (generally stocks) and ‘safe’ assets (such as US Treasury bonds). The traditional investment advice is to allocate wealth according to the so-called 60/40 rule : that is, 60% of one’s portfolio should be in higher-return but more volatile stocks, and 40% should be in lower-return, lower-volatility bonds. The rationale is that stocks and bond prices are usually negatively correlated (when one goes up, the other goes down), so this mix will balance a portfolio’s risks and returns.