But, Schlanger pointed out, there is one important caveat: Adding commodities may result in greater volatility and potentially long periods of underperformance.
“In fact, for much of the past 20 years, commodities had negative returns, which would have been a drag on any portfolio’s performance,” he added. “Yes, commodities can help hedge inflation over the short term—but you have to be prepared to accept the volatility. As with anything, there is no free lunch.”
For those who want to add inflation-hedging properties to their portfolios, adding commodities and TIPS is a viable option. For those who don’t prioritize short-term inflation-hedging, a traditional balanced portfolio can still work well.
For more details, including inflation-hedging asset mix alternatives that go beyond the 60/40 portfolio, see the paper.