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By Jason Stipp | 07-15-2011 02:38 PM

Balasa: Inflation Could Flare in the Intermediate Term

Planner Mark Balasa of Balasa Dinverno Foltz says he's repositioning clients' fixed-income allocations to be prepared for potentially higher intermediate-term inflation.

Jason Stipp: I'm Jason Stipp for Morningstar.

As part of Morningstar.com's inflation report, we are checking in today with noted financial planner Mark Balasa of Balasa Dinverno Foltz, to get his take on where we are in inflation today and some of the tools he may be using to keep his client portfolios ahead of inflation.

Mark, thanks so much for calling in today.

Mark Balasa: My pleasure.

Stipp: First question for you is a biggie I want to start big, and talk about your overall forecast for inflation. What do you bake in as you are thinking about what you need to overcome on the inflation front when you are planning you clients' portfolios?

Balasa: It's obviously a big question in a lot of people's minds because of the concerns around your purchasing power. So in the planning process for us, it's essentially two fronts; one is the projection side in terms of the cash flow projections for clients, and then of course as you said the portfolio construction.

If I touch on the portfolio construction side of things, in our perspective there is the short-term inflation concerned and then the long-term inflation concern. On the short-term side of things, as many people expect, inflation for the next six months or a year we hear over and over is going to be fairly muted because of the anemic U.S. economy. That being said, most people on the food and energy side, of course, they haven't been experiencing that. But you look at portfolio design we are assuming modest inflation in the short term. But in immediate term, of course, that concern goes up because of our government's borrowing and spending and what that might mean for inflation here in the U.S. So in doing the portfolio construction, we are trying to reposition the bond side, the fixed-income side of the portfolio, to be more sensitive to that intermediate need, as well as on the stock side.

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