How to Hedge Against Inflation: Top 5 Investments

A 2020 survey revealed that more than 83 percent of people in the US didn’t own physical gold or silver. More people are increasing their investments as these assets have always been a hedge against inflation.

Inflation causes your dollar to lose purchasing power. Managing your investments can help you hedge against inflation. Here are some ideas to guide your decisions.

Best Tips to Hedge Against Inflation

1. Buy Stocks and Securities

Value stocks are traditionally one of the best investments for inflation protection. Look for companies that are able to raise prices when costs rise, so they can keep up with inflation. When growth comes with inflation, many stocks keep up.

Treasury inflation-protected securities (TIPS) are US government bonds that pay an interest rate indexed to inflation. They pay interest twice a year, which is a great source of cash.

They’re backed by the US federal government, making them one of the more secure investments during this time. The yields are low so TIPS are best when you include them in a diversified portfolio.

2. Invest in Precious Metals

Gold and other precious metals have always held their value during inflationary times. Many investors buy gold ETFs as an inflation hedge but it’s possible to buy the physical asset.

Some investors prefer the portability of silver or gold coins as well as rounds and bars. If you’re not sure how to get started investing in these valuable assets, learn more here.

3. Consider Tangible Assets Like Real Estate

Real estate is an asset that is in demand despite inflation. If you own a home, lock in a fixed interest rate on your mortgage. That will help keep your housing costs lower than they might be if you were renting.

If possible, buy real estate to hedge against inflation. Property prices and rental incomes tend to rise with inflation so owning real estate gives you the chance to earn capital gains during inflationary times.

4. Commodities

Demand for certain goods remains strong even when inflation causes the price to rise. Commodities are raw materials used to produce things we need in our daily lives. They’re also things we consume directly, like oil and gas, and wheat or corn.

As the cost of commodities increases, it affects the cost of many products. A rise in commodity prices is sometimes an early sign of inflation. Invest in an ETF (exchange-traded fund) that holds a broad range of commodities to reduce the inherent risk.

5. Diversify Your Holdings

You reduce your overall risk when you spread your investments over a wide range of asset classes. When one or more of these asset classes does well, it can offset the losses you might be experiencing in less fortunate sectors of the economy. Consider holding some Bitcoin and Ethereum as they are considered another hedge.

Adjust your holdings to add inflation-hedged assets such as REITS or TIPS. Reevaluate your exposure to bonds or fixed rate products. Invest your cash because cash loses purchasing power over time.

Hedge Against Inflation

Did this article help you understand the ins and outs of trying to hedge against inflation? Your investment choices will come down to a series of trade-offs. It’s always helpful when you spend some time researching your options.

Did you find this article about investing and inflation helpful? If so, be sure to check out our other resources.

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