| However, there is a potential downside to this kind of government spending: inflation. More pundits are talking about the prospect for an uptick in inflation this year, and that can have a detrimental impact on your portfolio. How can stimulus spur inflation? Let's do a simple thought experiment. Imagine the U.S. government gave everyone a million dollars. Ignoring the obvious budget deficit issues that would create, what would happen? There would be a massive spending spree. People would buy cars, homes, boats, and all sorts of luxury items. In fact, demand for these items would be so great that supplies would have a difficult time keeping up with demand. That, in turn, would drive prices higher. Indeed, bond yields have been climbing as Wall Street increasingly worries about inflation. Rising yields have in turn weighed on stocks. Watch This Video: Rising Rates Rattle Wall Street The same inflationary dynamic occurs if you give everyone $1,400. People who usually don't have extra money to spend will buy all sorts of things. My brother works for the U.S. Postal Service. He told me that after last year's stimulus checks went out, you would have thought it was Christmas judging by the number of items people were receiving in the mail. A little inflation is a sign of a healthy economy. The Federal Reserve has targeted a long-term inflation rate of 2%. That means that each year, the goods and services we buy cost about 2% more than they did the year before. If your salary is increasing by 2% or more each year, at least that is keeping up with inflation. But if you have money parked in a savings account earning 0.1% interest, then it is losing about 2% of its purchasing power each year. So your goal, at a minimum, is to stay ahead of inflation. And if inflation heats up, your returns need to improve or you will lose purchasing power at a faster rate. If your money is parked in a low- or no-interest savings account, in 10 years it can lose 20% of its purchasing power even in a low-inflation environment. So, what should you do as an investor? You should have at least a portion of your portfolio in inflation hedges. These are assets that perform well in an inflationary environment. Some examples are gold, real estate, and commodities. A popular option for more risk-averse investors is Treasury inflation-protected securities (TIPS), which are U.S. Treasury bonds that are indexed to inflation. Finally, certain stock sectors are better for protecting against inflation. Some examples are the sectors that make the goods that are in high demand, and hence helping to drive inflation, or that provide the raw materials for these sectors. Popular inflation hedges include real estate investment trusts (REITs), gold stocks, energy stocks, and basic materials. Just remember, over the long haul, the worst thing you can do to protect against inflation is nothing. Leaving your money in a low-interest account is a long-term losing strategy. Editor's Note: Our colleague Robert Rapier just provided you with commonsense investment advice. You should also consider the advice of another expert on our staff: Amber Hestla, chief investment strategist of the trading services Income Trader, Profit Amplifier, Maximum Income, and Precision Pot Trader. Amber isn't just a veteran of Wall Street. She's also the veteran of a shooting war in the Middle East. She served in Operation Iraqi Freedom. While deployed overseas with military intelligence, she learned the importance of interpreting data to forecast what is likely to happen in the future. Right now, as an investment analyst in the civilian world, Amber wants to send you a brand new P.I.N. that gives you a shot at instant cash. This number will work so steadily every week, you'll begin to think of its payout as an extra "paycheck." To learn the specifics of how Amber's P.I.N. works, click here now. | 
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