Inflation is the market's biggest fear - here's how to protect yourself

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After about 35 years of generally falling inflation, signs of an uptick has unnerved investors. Inflation expectations have been climbing, and have been showing up in recent wages and consumer price data. According to a recent research note from Fidelity Viewpoints, there are three key reasons to consider inflation risk:

1. Inflation erodes purchasing power
2. Rising inflation has historically been a drag on stock and bond returns
3. When inflation is higher and more volatile, correlation between stocks and bonds increases

According to Fidelity Investments, investors may be able to mitigate inflation risks by adding diversification with asset classes that have historically held up better in rising inflation environments. Consider commodities, commodity-producing equities, gold, and short-duration bonds.