Treasury bonds are typically less attractive during inflationary periods, as their low yields can be rapidly eaten away by inflation. However, Treasury Inflation-Protected Securities, or TIPS, are U.S. government bonds specifically designed to protect investors against inflation. The principal value of TIPS increases with inflation and decreases with deflation, as measured by the CPI. Additionally, TIPS pay interest twice a year based on the adjusted principal, making them a considerable option for conservative investors. This asset class has intrinsic value and provides consistent income through dividends. American investors tend to lean towards stocks and bonds in the U.S., but the practice can be costly over the long term, especially during times of inflation.
In the meantime, you’ll lock in a strong return while maintaining optionality for your investable cash. We generally don’t think of these as “investments,” but they certainly become quite a bit more appealing when inflation pushes rates higher. As of August 2025, it was possible to find savings account interest rates of 4% or more from reputable banks.
Hedging Against Inflation FAQs
A REIT consists of a pool of real estate that pays out dividends to its investors. If you seek broad exposure to real estate to go along with a low expense ratio, consider the Vanguard Real Estate ETF (VNQ). Another measure that investors can take to hedge against inflation is to create a diversified portfolio of stocks from around the world. Given the variety of inflationary scenarios, investors need to learn how to navigate these conditions. It is important to choose the right assets to invest in, taking into account the growth or decline in the purchasing power of money. Keep in mind that there is no universal way to avoid the negative impact of this economic factor.
If you’re interested in this approach at some point down the road, consider Invesco Senior Loan ETF (BKLN). Like any investment, there are pros and cons to investing in real estate. First, when purchasing real estate, the transaction costs are considerably higher (as compared to purchasing shares of a stock). Second, real estate investments are illiquid, meaning they can’t be quickly and easily sold without a substantial loss in value. If you are purchasing a property, it requires management and how to hedge against inflation maintenance, and these costs can add up quickly. And finally, real estate investing involves taking on a great deal of financial and legal liability.
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- Energy stocks have benefited significantly during past periods of inflation, as oil, gas, and renewable energy infrastructure often saw sharp price increases during those times.
- Although traditional bonds are the usual go-to for the income-oriented, they aren’t the only investment that produces a revenue stream.
- Inflation as a long-term, sustained process should be distinguished from a one-time increase in prices (due to monetary reform or a political event).
- As companies grow their net revenues, they also increase the dividends distributed to shareholders, which assures investors higher cash flows in the future.
Even though TIPS may appear like an attractive investment, there are a few risks that are important for investors to keep in mind. If there is deflation or the Consumer Price Index (CPI) is falling, the principal amount may drop. To maintain our free service for consumers, LendEDU sometimes receives compensation when readers click to, apply for, or purchase products featured on the site. Additionally, our editors do not always review every single company in every industry. In periods of high inflation, landlords often raise rents, helping investors maintain or even grow their cash flow. With a passion for helping readers make informed decisions about their money, Bill loves to demystify complex topics such as gold investment, debt management, and budgeting.
Commodities such as oil, natural gas, agricultural products, and industrial metals are raw materials whose prices tend to rise as inflation increases. For investors who value independence and liquidity, owning physical gold is a powerful way to hedge against inflation. With inflation rising and traditional assets under pressure, crypto IRAs offer a modern, alternative way to preserve wealth and diversify your portfolio for the digital age. Some crypto investors even believe bitcoin will go to $1 million per coin and beyond. Real estate investment trusts (REITs) allow for real estate exposure without the need to directly manage properties. Investing in real estate also provides you with potential tax advantages and a steady income stream from rental properties.
Another key advantage is that their prices probably won’t be as affected when rates start to rise, because their operating costs are going to remain largely unchanged. An example of a REIT with broad exposure to real estate and a low expense ratio is the Vanguard Real Estate ETF (VNQ). You may find yourself missing out on returns compared to a portfolio with a higher percentage of stocks. A certificate of deposit (CD) is a short- to medium-term deposit in a financial institution at a specific fixed interest rate. If you would like to reduce the impacts of inflation on your CD investments, consider buying a CD that is higher than the inflation rate so that you can get the most value for your money.
Professional Investors
Inflation measures the average price level of a basket of goods and services in an economy; it refers to the increases in prices over a specified period of time. Treasury, are specifically designed to protect your money from inflation. They offer a composite interest rate made up of a fixed rate and a variable inflation-adjusted rate that changes every six months based on the Consumer Price Index (CPI). Unlike fiat currencies, which central banks can inflate through excessive printing, many cryptocurrencies have fixed or predictable issuance schedules. This means new coins are released into circulation at a set rate, making the total supply transparent and limited and helping protect the asset’s value from inflation over time. They also serve as an excellent way to diversify a portfolio, balancing more volatile investments and providing stability during times of economic uncertainty.
Protect the value of their investment
- These bonds tend to be less sensitive to interest rate spikes and offer a predictable return, making them suitable for investors who prioritize capital preservation over high returns.
- There are, however, many ways for investors to hedge against inflation, including some investments and inflation-hedged asset classes designed specifically for that purpose.
- Other factors can drive its prices, which can fluctuate wildly from year to year—which means its inflation-adjusted returns can too.
This can be an especially big benefit for the largest banks, which tend to pay low rates on deposits, even in higher-rate environments. In 2022, as inflation skyrocketed and the Fed increased rates to combat it, Bitcoin dropped drastically throughout the year, ending the year at around $23,100. In 2023, with inflation easing but rates on the rise, Bitcoin began ascending, closing out 2023 at $42,500. In 2024, with inflation easing further, Bitcoin continued its ascent to approximately $90,000 by November.
TIPS are particularly appealing during periods of high inflation forecasts. They offer a government-backed guarantee against the inflationary erosion of purchasing power, making them a cornerstone in any inflation-focused investment strategy. As inflation eats away at the value of money, you need to seek out investment strategies that can potentially maintain or increase your purchasing power.
However, some investors still prefer investing in stocks with the hope of offsetting inflation in the long term. As the cost of living rises, so do property values and rental income, making real estate investments more valuable over time. Land and property are also tangible, finite resources—meaning they generally hold intrinsic worth regardless of economic conditions. Gold has long been considered a reliable store of value during times of economic uncertainty and inflation. Unlike fiat currency, which loses purchasing power as inflation rises, gold typically retains (or even increases) its value. By investing in the stock market, particularly in equities known to offer dividends, you can potentially outpace inflation.
A 60/40 stock/bond portfolio is considered to be a safe, traditional mix of stocks and bonds in a conservative portfolio. These funds focus on companies with strong track records of consistent and growing dividends, making them ideal for long-term inflation protection. A crypto IRA, similar to a gold IRA, lets you hold digital assets in a tax-advantaged retirement account, potentially allowing for long-term growth while hedging against currency debasement. Real estate investments can also offer long-term capital appreciation potential, making them an integral part of a well-rounded inflation hedging strategy.
But like any strong portfolio, diversification is key, and if you are considering investing in gold, the SPDR Gold Shares ETF (GLD) is a worthwhile consideration. A rise in the price of goods or services is driven by supply and demand. A rise in demand can push prices higher, while a supply reduction can also drive prices. As a result of inflation, a specific amount of currency will be able to buy less than before. Therefore, it is important to find the right strategies and investments to hedge against inflation.