Developing an Investment Portfolio to Hedge against Consumer Price Increases in Select Industries During Periods of High Returns

The prices for the major groups of personal consumption expenditures from food and beverages to housing, transportation, medical care, and education are compiled in the Consumer Price Index (CPI). Declining purchasing power forces consumers to spend a greater proportion of income on disposable goods and services, reducing wealth.;The objective of this research is to assess the impact of inflation on household wealth creation, and develop a hedge against rising consumer prices. The results of this research indicate that inflation can be offset by investing in equities for appreciated value and dividends on an after-tax basis. The result is a neutralization of the price increases in select industries, enhancing wealth creation.;The study includes an analysis of the largest companies in 2008, the largest individual company, and an Exchange Traded Fund (ETF) in select industries. The industries selected for analysis included oil/gas, food and health care. This study offers a possible method to offset the effects of inflation and demonstrates its applications using economic data over a five year period, 2008-2013.;Using a newly created Targeted Equalization Hedge (TEH), it is determined which of the portfolios generated the highest return with a minimum investment. The results indicated that the full portfolio of the largest companies generated the highest returns of 145.03% after appreciation and after-tax dividends at a minimum investment of ;The model was repeated for an additional five year time period (1979-1984) with no difference noted. Later, adjustments for stock spinoffs are incorporated and result in a decrease of the minimum investment. It was employed for future years (2015-2020) and the results will be determined in subsequent research. Additional research could determine if this strategy will be successful in continuing to offset inflation in the food, gas and health care industries. Finally, for further research, the model could also be used to determine if the TEH equation is useful as an offset of rising prices in other industries.