Inflation is up. A trip to the local grocery store makes most people aware of that fact. By the end of 2021, inflation in the United States had reached 7%, a figure that hasn't been seen since the 1980s. As prices at checkout and pump increase, do investors have options to hedge against inflation-related losses?
The answer is yes: There are definitely investments that hold steady or perform well during periods of inflation.
Gold is the tried-and-true hedge in any portfolio. Historically, the value of gold has always increased over long stretches of time, and it tends to increase in value at a rate that outpaces average inflation. Those who hold gold long term do usually find they come out of the tunnel with a profit.
That being said, gold can be a complex investment. Individuals can invest in physical gold, gold EFTs, or even hold gold in Precious Metals IRAs. Newcomers to gold investing may want to discuss options with a financial advisor before buying.
2. Treasury Inflation-Protected Securities
The U.S. Treasury sells these securities, which are referred to as TIPS for short. The values of these vehicles are updated annually to keep pace with inflation, helping ensure investors won't be hit with a loss just because inflation is on the rise.
3. Real Estate
Real estate — particularly single-family homes — can be a strong hedge against inflation and other economic factors. Property values overall tend to hold their own and outpace average inflation, but obviously, that depends on location and other market factors. Investors going this route also need to pay close attention to the housing and real estate markets, especially during times such as 2020 and 2021 when things were volatile.
4. Stable Stocks
Investors shouldn't necessarily dump stocks just because inflation is on the rise. Inflation may go down, and many stable stocks have demonstrated historically rising values over time. Stocks like Apple, Microsoft, or other top performers may keep gaining enough to outpace inflation, so investors should watch markets carefully when considering whether to buy, hold, or sell.