7 Types of Inflation Resistant Investments

7 Types of Inflation Resistant Investments

If you’ve noticed that your grocery bill has been going up recently even though you’re buying the same amount of food, you aren’t alone. Inflation is on the rise and the entire economy is affected.

Inflation refers to the increase in prices for goods and services over a period of time. Inflation itself isn’t bad, but it can reduce the buying power of your money when it gets too high. The main measure of inflation in the U.S. are the Consumer Price Index (CPI), the Producer Price Index (PPI), and the Personal Consumption Expenditures Price Index (PCE).

For most consumers, increased prices may mean revising family budgets and limiting purchases. If you invest, you should be much more concerned about your money losing value in the stock market. Those with money in low-interest bank accounts and investments effectively lose money during periods of higher inflation.

If you are looking for alternate ways to protect your money and investments form rising inflation, there are some options worth looking into.

1. Invest Cash in Money Market Funds, CDs, or High-Yield Savings

To take advantage of higher interest rates, consider moving some cash from low-yield accounts to an account with a higher interest rate. Interest rates on money market accounts generally rise with the market, unlike the fixed interest rate of a low-yield savings account.

Depending on the term selected, certificates of deposit (CDs) also generally offer higher yields than savings accounts that have low, fixed interest rates. Shifting funds to a higher-yield savings account is also an option.

2. TIPS (Treasury Inflation-Protected Securities)

TIPS stands for US Treasury Inflation-Protected Securities. TIPS are government bonds that have yields that rise and fall with inflation rates. Because they’re indexed to inflation, they can help balance out your portfolio. They can be purchased in increments of $100.

TIPS are considered to be one of the safest types of investments because they are backed by the U.S. Federal government. TIPS bonds are issued in 5, 10, and 30 year maturities and they pay interest twice per year, adjusted annually based on the Consumer Price Index (CPI). The adjusted principal or original principal, whichever is greater, is paid at maturity.

3. Real Estate

On a long-term basis, real estate has traditionally responded well to inflation. Real estate often sees its highest price appreciation during periods of higher inflation. As rents rise, investors flock to real estate to reap the income benefits.

Investors can purchase residential and commercial properties directly, or they can also invest in REITs. A REIT, or Real Estate Investment Trust, is a company that owns, operates or finances real estate. A REIT owns different kinds of income-producing real estate, like office buildings, warehouses, and retail strip malls. A REIT collects rent on the properties that is owns and leases.

4. Short-Term Bonds

Bonds are debt instruments issued by governments and corporations that guarantee a predetermined amount of interest each year. Bonds issued by governments and highly rated U.S. corporations are generally very low-risk investments. The risk can vary, depending on the credit rating of the issuer and the maturity term of the bond.

Bonds issued by state and local governments are some of the more tax-efficient investments available because they are usually not subject to federal income taxes.

5. Stocks

Investing in the stock market is a potential way to beat inflation. Individual stock prices may fall and the general market may be down for temporary periods of time, but stocks have historically beat inflation in the long run.

While there are no guarantees, diversifying the portfolio of stock investments can beat inflation and grow wealth over several decades. There are lots of brokerages and advisory firms that can help newer investors craft a stock investment strategy.

6. Gold

Gold does not always hedge against increasing inflation on a short-term basis, but it tends to do well when invested over several decades. The price can fluctuate wildly because it is impacted by so many different factors – supply and demand, monetary policies, and global currencies.

You also have to find a secure location to physically store gold. When held for longer than a year, gold is also subject to a higher long-term capital gains tax rate than stocks and bonds.

7. Commodities

Prices for commodities like metals, oil and agricultural products generally increase with inflation, which can make them an option for protecting against it. Investing in commodities should be weighed carefully, though, because they are a risky investment. The prices of commodities can be unpredictable because they are also impacted by supply and demand. Alternatively, you could invest in energy and agricultural stocks and funds.

Adjusting any investment strategy requires careful consideration. Make sure you do your research before jumping into any of these options, especially if you are unfamiliar with them.

Check out some of my other posts on saving, making, and investing money:

Disclaimer: This information is intended for educational purposes and is not tailored for the needs of any specific investor. It is important to conduct your own analysis and research before making any investment.  It is recommended to independently research and verify or seek financial advice from a professional in connection with any information on this website before using it to make an investment decision or otherwise.

7 Types of Inflation Resistant Investments

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