Inflationary pressures aren’t only relegated to consumers via higher prices on goods and services. They’re also hitting small businesses and their bottom lines.

This is especially the case when it comes to wage inflation. As inflation continues to push higher, higher wages are necessary in order to stay competitive in a tight labor market, which is hurting small businesses.

“I think there are a lot of business models, especially for small businesses, that are going to be challenged for the future,” said Chicago Federal Reserve President Charles Evans in a CNBC report. “They’re going to be asked to pay higher wages, and you know if inflation is going up, it’s the real wage that’s going to equate demand and supply.”

“Wages are going to go up. If rents are going up, gas is going up, food costs are going up, and there are a lot of businesses where margins are very thin,” Evans added. “Can they really survive that?”

In the meantime, investors have options when it comes to hedging inflation. For a bond portfolio, that could mean adding Treasury inflation-protected securities (TIPS) and/or shortening duration to limit rate risk.

Getting Inflation Protection and Shortening Duration

Bond investors looking to hedge against inflation with TIPS and short duration can have it all in one fund: the FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT). The fund comes at a low expense ratio of 18 basis points.

TDTT seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the iBoxx 3-Year Target Duration TIPS Index. The underlying index reflects the performance of a selection of TIPS with a targeted average modified adjusted duration, as defined by the index provider, of approximately three years.

TDTT can be useful as a tool for protecting portfolios against anticipated upticks in inflationary pressures,” an ETF Database analysis explains. “TDTT could be used, in moderate amounts, by buy-and-hold investors, or as a tactical play for those looking to shift into low-risk assets that may hold up well in inflationary environments.”

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