This article includes links which we may receive compensation for if you click, at no cost to you.
Inflation sucks. Here you are, doing the right thing, working hard, saving your money, and even investing some of it too. Then, seemingly out of nowhere, the prices for everything start to rise.
You need to spend more of your hard-earned money to cover expenses like food and fuel. That leaves less in your account to save and invest. You feel like that Greek dude Sisyphus—forever rolling a stupid boulder up a hill and getting nowhere.
That’s especially been the case lately. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI)—an important measure of inflation—shows prices for goods and services rose nearly 8% during the last 12 months.
That inflation rate is the highest we’ve seen since the 1980s—back when people listened to Rick Astley on purpose.
Luckily, there are some investments you can use to protect your money against high inflation rates. And believe it or not, there are some investments that can even help you profit from rising inflation.
In this investing guide, we’ll cover some strategies you can use to inflation-proof your portfolio and stop worrying about rising prices.
So let’s get started!
TIPS stands for Treasury Inflation Protected Securities, which sounds about as boring as these investments are.
But although they may not be as exciting as, say, cryptocurrencies, TIPS are pretty much the safest investments out there.
Each Treasury Inflation Protected Security is a government bond that mirrors the movements of the inflation rate as measured by the Consumer Price Index. When you own TIPS, you’ll receive an interest payment every six months.
So when inflation goes up, so do the interest rates that TIPS pay. And when inflation goes down, the TIPS interest rates follow suit.
In this way, TIPS are a perfect inflation hedge. And because they are backed by the US federal government, there’s practically zero risk of losing your initial capital.
How to Buy TIPS
It’s really easy to buy a Treasury Inflation Protected Security. Most retail investors buy them through their stock brokers.
But you can also buy TIPS straight from the Treasury via the TreasuryDirect website.
One of the biggest drawbacks of TIPS is that the Treasury offers them for sale only a few times per year at auction through the TreasuryDirect site. So if you’re interested in investing in TIPS, you may need to wait until the next auction. The TreasuryDirect website regularly posts auction schedules.
You can buy a Treasury Inflation Protected Security for as little as $100. In fact, they’re sold in multiples of $100. TIPS are longer-term plays; you can buy them in terms of five, 10, and 30 years.
Now, a lot of people will tell you to run away screaming from the stock market in times of economic uncertainty. But you don’t need that kind of negativity.
In fact, some stocks have historically done very well during times of rising inflation.
The key is to know what you’re doing. Don’t just pick the stock of your favorite restaurant chain.
As inflation gets worse, that could spell bad news for a lot of businesses. After all, they have to deal with higher operating costs, smaller profit margins, and declining sales. All of those factors can have a decidedly negative effect on stock values.
However, some companies know how to play the inflation game. These are likely businesses that offer must-have consumer products. The kind of stuff people will continue to buy, even if prices are higher. And they tend to have been around for decades and be household names.
The Best Stocks to Play Inflation
I’m talking about consumer goods companies like Tyson Foods (TSN) and Coca-Cola (KO). Lower-price retailers like Dollar Tree (DLTR) and Walmart (WMT) have also done quite well during previous inflationary periods.
And today, with computer chips at a premium due to ongoing supply/demand imbalances, I still love the idea of grabbing chip makers like Advanced Micro Devices (AMD) and Nvidia (NVDA).
But here’s another secret: Think longer term, beyond inflation.
If there’s a company that you believe will grow and prosper once it can expand its profit margins, consider buying when its stock isn’t doing too well.
That way, you can grab shares at a low price and wait for good news to sell at a profit.
Some investors call this kind of stock a “value stock”. Buying these guys is a favorite trading technique of Warren Buffett, the world’s most admired investor.
Just be prepared to hang onto the stock through times of volatility. And believe me, there may be volatility.
How to Buy Stocks
If you are just starting out with an investment portfolio and want to buy your first stocks, you may be surprised by just how easy it is to begin.
There are many online brokers that let users invest in stocks without charging a commission on each trade. We’ve rounded up a guide to our favorites.
Of course, instead of selecting individual stocks, you may also want to consider buying exchange-traded funds (ETFs) in sectors that tend to do well during inflation, such as healthcare, consumer goods, commodities, and energy.
These funds trade like stocks and allow you to diversify your portfolio. For example, instead of buying one energy stock, you could buy an ETF that tracks an index of several energy stocks.
If one of the stocks in the fund underperforms, all is not lost. The other holdings in the ETF can still increase the fund’s value.
3. Real Estate
Real estate is such a cool thing to invest in. I love it because there is actually something there—an actual building or an acreage of real freaking grass or trees.
It’s the total opposite of crypto investments like non-fungible tokens, or NFTs. They’re definitely not good inflation-proof investments because they have zero intrinsic value.
But you can’t get realer than real estate.
And during times of rising inflation, real estate can be a great asset class to own. That’s because, as prices rise, the prices of property tend to grow too.
Ways to Invest in Real Estate
There are several different ways you can invest in real estate.
Fix and Flip
If you have the money to buy and flip houses for a profit, that’s great. However, be careful, because rising costs for construction materials and other supplies you may need to finish a flip might eat into your profit margins.
Here’s another consideration: In an effort to curb inflation, the Federal Reserve—the US central bank—is slowly raising benchmark interest rates. That will result in higher mortgage rates, which might deter some folks from buying homes.
Rental Real Estate
And that leads us to another real estate investment: rental real estate. Whether you manage a number of apartments or own and lease commercial property, this can be an awesome moneymaker.
Again, keep in mind that inflation might decrease your purchasing power when it comes to the supplies you need to manage rental properties.
Some investors have found great success investing with a real estate crowdfunding platform such as Fundrise.
These online investment companies pool investors’ money to manage properties. You can find crowdfunding platforms for all kinds of real estate, from commercial spaces to apartment buildings, to farmland.
When you invest with one of these platforms, you don’t actually own the properties. But that’s OK, because you won’t have to deal with the annoyances of being a landlord. All you have to do is invest and collect passive income.
However, some crowdfunding platforms require you to be an accredited investor to participate. That means you:
- Have earned income of more than $200,000 per year for the last two years; or
- Have a net worth greater than $1 million.
REITs, or real estate investment trusts, are another great way to invest in real estate. Like crowdfunding platforms, they let you buy into properties with other investors.
However, they’re usually traded on an exchange just like regular old stocks. And you don’t need to be an associate to investor to participate.
If you don’t want to pick and choose individual REITs for your investment portfolio, you can find mutual funds that invest in these securities. In addition, there are a couple of REIT-specific ETFs.
Like real estate, commodities are real assets with intrinsic worth.
The definition of a commodity is any tangible good that can be bought or sold or exchanged for items of similar value.
That can include everything from gold and silver to corn and sugar, to coal and oil.
In high inflationary times like right now, precious metals like gold and silver tend to be a class of commodities that performs well. That’s because they tend to hold their value over the long term.
How to Buy Precious Metals
You can buy precious metals directly—think hoarding gold coins under your mattress. There are several websites that let you take ownership of metal.
You can also use your brokerage account to buy gold and silver through exchange-traded funds that hold the actual precious metals.
And you can indirectly invest in precious metals by buying mining stocks or mining ETFs. However, keep in mind that the prices of these securities can fluctuate. They don’t necessarily move in tandem with the value of the metals they mine.
What’s the Worst Investment for Inflation?
Hands down, the worst investment you can buy in this inflationary environment is any long-term, fixed-rate investments.
We’re talking bonds and other debt securities with maturities of 10 years or longer.
That’s because, when the Federal Reserve mandates a higher interest rate, the fixed rate that these securities pay looks less attractive. So investors dump them for investments with higher payouts.
That makes these fixed-rate securities lose their value.
The Bottom Line
Inflation might be making life miserable now, but take comfort in the fact that it won’t last forever.
However, whenever we have a period of high inflation and stock market volatility, there are plenty of ways you can protect and even grow your money.