In my continuous search for the best investments under different conditions and testing the “intelligence” of AI, I have once again, created a portfolio using AI under inflationary conditions.
The goal this time was to create a 3 ETF portfolio for high inflationary period lasting 5 to 7 years with inflation growing from 3% to 7% over that time period. I asked for recommendations for 3 different account types: Roth, IRA and Taxable accounts and optimized for inflation and taxation. Remarkably, AI suggested I add currency hedging as well so I ended up with 5 ETFs for this AI challenge.
AI
Below is a fully rebalanced, inflation-hedged ETF portfolio incorporating the two new currency ETFs while keeping the total at exactly $1,000,000.
I optimized the allocation to preserve your inflation protection (commodities, gold, TIPS, real estate) while carving out room for FXE and FXY without increasing risk.
✅ Rebalanced $1,000,000 Inflation-Hedged Portfolio (5-Year Horizon)
Account Allocation Summary
| Account | Old Total | New Total | Notes |
|---|---|---|---|
| Roth IRA | $350,000 | $330,000 | Reduced slightly to free room for currency hedge |
| Traditional IRA | $300,000 | $300,000 | Unchanged — keeps tax-inefficient assets here |
| Taxable Account | $350,000 | $370,000 | Increased to house currency ETFs |
🟦 Roth IRA — $330,000 (Growth + tax-inefficient REITs + TIPS)
These stay largely intact because:
- Roth is perfect for high-growth tech and tax-inefficient REITs.
- TIPS in Roth avoid taxation on phantom income.
Roth Allocation
| ETF | Amount |
|---|---|
| QQQM (Nasdaq 100) | $200,000 |
| SCHH (US REITs) | $100,000 |
| VTIP (Short-Term TIPS) | $30,000 |
| Total Roth | $330,000 |
Reduction came from VTIP (reduced from $50k → $30k).
🟩 Traditional IRA — $300,000 (Commodity futures + long-term TIPS + dividends)
No changes here — this is the most tax-efficient placement for:
- Commodity futures (PDBC)
- Long-term TIPS (SCHP)
- High-dividend stocks (VYM)
Traditional IRA Allocation
| ETF | Amount |
|---|---|
| PDBC (Commodity Strategy) | $150,000 |
| SCHP (Long-Term TIPS) | $100,000 |
| VYM (High Dividend Value) | $50,000 |
| Total IRA | $300,000 |
🟧 Taxable Account — $370,000 (Equities + real estate + gold + currencies)
Added both currency ETFs here because they are:
✔ naturally tax-efficient
✔ low turnover
✔ low distribution burden
To keep risk balanced, the cuts came from VOO and VNQ.
Taxable Allocation
| ETF | Amount |
|---|---|
| VOO (S&P 500) | $180,000 (reduced from $200k) |
| VNQ (Real Estate) | $90,000 (reduced from $100k) |
| GLDM (Gold) | $50,000 |
| FXE (Euro) | $25,000 |
| FXY (Yen) | $25,000 |
| Total Taxable | $370,000 |
📊 Final Allocation by Asset Class
| Asset Class | Allocation | Purpose |
|---|---|---|
| Equities (QQQM, VOO, VYM) | 43% | Growth > inflation |
| Real Estate (SCHH, VNQ) | 19% | Rents rise with CPI |
| Commodities (PDBC, GLDM) | 20% | Direct inflation hedge |
| TIPS (SCHP, VTIP) | 13% | Guaranteed inflation linkage |
| Currencies (FXE, FXY) | 5% | USD weakness hedge |
🎯 Why This Works
- Protects against 3–7% rising inflation via commodities, TIPS, and real assets.
- Adds global currency exposure to hedge USD depreciation.
- Places assets strategically for tax optimization.
- Maintains long-term equity growth while reducing concentration risk.
My Thoughts
I was actually surprised by the suggestion of Yen and not Swiss currency so I asked why and AI gave me a long detailed answer which seemed reasonable but the gist was, “JPY has a more consistent inverse correlation with USD during inflationary periods and JPY is undervalued.“
I’ve used Swiss and Euro currencies as hedges for my portfolio in the past and it’s worked well for me so I am considering the currency hedges again this time and will probably buy some FXY (Yen ETF) this time around.
I’m not sure about PDBC. It’s supposed to be a commodities ETF but when I look at the current holdings in SeekingAlpha it shows mostly holding cash.
To test the recommendation, I asked AI to give me the returns for all the ETFs it recommended from 2020 thru 2024, a period of high inflation.
Disclaimer: This is again a test of AI and it’s ability to generate portfolios under certain conditions, please don’t take anything on this post as investment advice and always consult a professional when investing, especially if you don’t know what you’re doing.
Share The Wealth
What are your thoughts on the recommendations for an inflationary time period? Let me know in the comments below.