By Elizabeth O'Brien
Surging oil prices are driving the stock market these days. A prolonged conflict in the Middle East could keep them in the stratosphere and contribute to elevated inflation. It's time to prepare your retirement portfolio for a bumpier ride.
Federal Reserve officials expect inflation to end the year higher than previously forecast, according to the quarterly Summary of Economic Projections released Wednesday afternoon. Policymakers expect the headline PCE index to measure 2.7% year over year by the end of 2026, versus 2.4% projected in December. They expect core PCE inflation -- which excludes volatile food and energy costs -- to end the year at 2.7% year over year, compared with 2.5% projected in December.
Retirees are generally more vulnerable to pricing pressures than workers. The annual cost-of-living adjustment to Social Security benefits is typically smaller than raises offered by employers. Older adults tend to consume more goods and services, like healthcare, that are subject to higher inflation. Seniors aged 75-plus spend an average of 16% of their budget on healthcare, versus 7% for those between 35 and 44, according to J.P. Morgan Asset Management.
A carefully constructed portfolio can help you meet these spending needs without taking undue risk. "The biggest way to lose wealth is through the erosion of asset values through inflation," says Adam Bergman, founder of IRA Financial, a platform for self-directed individual retirement accounts.
The classic, 60% stock, 40% bond portfolio is a sturdy place to start. This mix tempers volatility more than an all-equity portfolio. During the hyperinflationary stretch of the early 1970s, the 60/40 portfolio declined 39% to the stock market's 52%, according to an analysis by Morningstar.
In fact, recent years are the only time in the last 150 years when an investor would have experienced more pain in a 60/40 portfolio than in 100% stocks, Morningstar found. Stocks and bonds both plunged in 2022 when the Fed hiked interest rates to tame inflation, but while the stock market recovered its previous high in September 2024, the 60/40 portfolio didn't hit its previous high until June 2025, according to Morningstar. Yet even in this awful period for bonds, the 60/40 portfolio declined less than an all-equity or all-bond portfolio.
For higher return potential, some experts advocate tweaking the 60/40 mix to 50% stock, 30% bonds, and 20% alternatives.
Real estate could go in the alternative bucket. It is more resistant to inflation, since property values and rental income tend to rise alongside consumer prices. Some pros see the sector as a good place to hide from the Iran war and fears over artificial intelligence. The State Street Real Estate Select Sector SPDR exchange-traded fund has returned 5.5% this year, while the S&P 500 index has lost nearly 2%.
Gold is typically thought of as an inflation hedge, but the precious metal is more a store of value than a reliable hedge against rising prices. It doesn't throw off income, and that's one reason why advisors generally advocate an allocation of no more than 5% of your portfolio. Many recommend a liquid version like the SPDR Gold Shares ETF, although Andrew Crowell, vice chairman of wealth management at D.A. Davidson in Pasadena, Calif., sees some value in holding a small amount of physical gold in a safe.
You can buy some gold coins or bars as insurance against a doomsday scenario, then pass them along to grandchildren or other heirs if they aren't needed, he says. "It serves as psychological reassurance," Crowell says.
No matter where you put your money, you can't invest your way out of a truly terrible market. If things get ugly and stagflation -- the toxic mix of inflation and slowing growth -- takes hold, retirees may have to temper expectations, slash spending, maybe even take a part-time job.
Building a resilient portfolio that tolerates inflation is a good start.
Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com
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(END) Dow Jones Newswires
March 20, 2026 21:30 ET (01:30 GMT)
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