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Inflation is set to hurt both stocks and bonds

The correlation between stock and bond prices turns from negative to positive, upsetting the balance of portfolios

Inflation is set to hurt both stocks and bonds
Photo: Getty Images

Nouriel Roubini, professor emeritus at New York University’s Stern School of Business, is chief economist at Atlas Capital Team

Rising inflation in the United States 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 60/40 rule: 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.

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