What Investments Are Inflation Proof?

What Investments Are Inflation Proof

Sharing is caring!

As everyone can attest to when they lived through 2022, inflation has and will continue to each into your buying power.

As you can see from the chart below, according to the US Bureau of Labor & Statistics, year over year inflation in 2022 ranged between 7.1% and 9.1%, the most aggressive increase in decades

source: tradingeconomics.com

One of our favorite things about investing in real estate is that it generally keeps up with inflation.

But what are some other investments that can either keep up or beat inflation?  Here are eight to get you started.

8 Investments That Can Beat Inflation

8 investments that can beat inflation

1. TIPS

Boring as they may sound, Treasury Inflation Protected Securities (TIPS) are a great investment for those looking to protect their money from inflation.

Although cryptocurrencies may be more exciting, TIPS are much safer investments.

Treasury Inflation Protected Securities (TIPS) are government bonds that are linked to the Consumer Price Index (CPI) to protect investors against inflation. When you own TIPS, you’ll receive an interest payment every six months. You’ll also get a principal payment at the end of the TIPS’ maturity date.

This means that when inflation goes up, the interest rates on TIPS will also increase. The interest rates on TIPS decrease when inflation decreases.

In this way, TIPS are a perfect inflation hedge. The chance of losing your investment is very low because the government guarantees the savings bonds.

2. Stocks

A lot of people will tell you to avoid the stock market during times of economic uncertainty. But you don’t need that kind of negativity.

Some stocks have done well in the past when there was rising inflation.

The key is to know what you’re doing. Do not just choose the stock of your favorite restaurant chain.

As inflation continues to grow, businesses may begin to struggle. They are struggling because they have to spend more on operating costs, make less money in profit, and sales are dropping. All of those factors can decrease stock values.

However, some companies know how to take advantage of inflation. These are likely businesses that offer must-have consumer products. Even if prices increase, people will still purchase the same items. Companies that have been around for a long time and are well known.

The Best Stocks to Play Inflation

Many have long been bullish on companies like Tyson Foods and Coca-Cola for a long time. Retailers who charge lower prices, like Dollar Tree and Walmart, have done well during inflationary periods in the past.

Today, others prefer investing in computer chip makers like Advanced Micro Devices (AMD) and Nvidia (NVDA), even though chips are in high demand and there is an imbalance between supply and demand.

But here’s another secret: Think longer term, beyond inflation.

Look for companies that you believe in and will grow, then buy their stock when it is not doing well.

This means that you can buy shares when the price is low and then sell them when the price goes up.

This kind of stock is usually called a “value stock” by some investors. This is a favorite trading technique of Warren Buffett, the world’s most admired investor.

Just remember that the stock might go up and down a lot. And believe me, there may be volatility.

How to Buy Stocks

If you’re just starting to invest in stocks, you may be surprised by how easy it is to get started.

There are many online brokers that do not charge a commission on each trade.

You may want to consider buying ETFs in sectors that do well during inflation, such as healthcare, consumer goods, commodities, and energy.

Funds that trade like stocks can help you to diversify your portfolio.

Even if one of the stocks in the fund doesn’t do well, it’s not the end of the world. The other companies that the ETF owns stock in can still increase the fund’s value.

3. Real Estate

Real estate is a great investment opportunity. At 40PlusFinance.com, we love the idea of physical assets that we can touch, feel, and see. There is something inherently eternal about physical things and it’s a core component of our financial freedom plan.

In contrast to crypto investments like non-fungible tokens, staking is much more low-risk. They’re not good investments because they don’t have any value.

But you can’t get more real than real estate.

When inflation is on the rise, real estate can be a great investment. When the cost of living goes up, the prices of houses and other property also generally increase.

Ways to Invest in Real Estate

You can invest in real estate in several different ways.

Fix and Flip

If you’re looking to make some money by buying and flipping houses, that’s great. However, you need to be careful because the cost of construction materials and other supplies required to finish a flip might reduce your profit.

Rental Real Estate

An alternative real estate investment to consider is rental property. This can be an awesome moneymaker, whether you manage a number of apartments or own and lease commercial property.

Crowdfunding Platforms

Some investors have found great success by investing with a real estate crowdfunding platform, such as Fundrise.

Online investment companies allow investors to pool their money together in order to more effectively manage properties. There are crowdfunding platforms available for a variety of different types of real estate, including commercial spaces, apartment buildings and farmland.

You are not the owner of the property when you invest with one of these platforms. However, that is acceptable because you will not need to manage the hassles of being a property owner. The only thing you have to do is invest your money and then collect the passive income it generates.

Crowdfunding platforms that require you to be an accredited investor to participate are only accessible to a select group of people. 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.

Turnkey Real Estate

Our own personal preference for investing in real estate is through Turnkey Real Estate.  Fully rehabbed properties, ready with tenants makes real estate investing as passive an income opportunity as possible, while still being able to beat inflation.

REITs

REITs are a type of investment that allows you to invest in real estate without having to purchase or manage property. REITs are bought and sold on stock exchanges, and they can be a great way to diversify your portfolio. Platforms like these allow you to invest in property with other people.

Although they are not traded like regular stocks, they are still traded on an exchange. You don’t have to be an accredited investor to participate.

There are mutual funds you can invest in if you want to avoid picking and choosing individual REITs for your investment portfolio. In addition, there are a couple of REIT-specific ETFs.

4. Gold

Gold Can Beat Inflation

Gold has often been considered a hedge against inflation. Many people have turned to gold as a way to preserve their wealth as the value of their native currency decreases. Countries that have experienced currency failure tend to turn to gold or other strong currencies. Gold is a physical asset that usually retains its value.

Gold is not a perfect hedge against inflation. In order to combat inflation, central banks will often raise interest rates.

An asset that pays no yields, like gold, is not as valuable as an asset that does when rates are higher, meaning yields are higher.

Our own preference is to buy physical gold and keep it on hand rather than to buy gold funds or other derivatives.

5. Commodities

Examples of commodities include grain, precious metals, electricity, oil, beef, orange juice, and natural gas, as well as foreign currencies, emissions, and certain other financial instruments. Commodities and inflation have a complicated relationship, where commodities can be an indicator of inflation to come. When the cost of a good goes up, so does the cost of the items that the good is used to create.

You can invest in commodities through ETFs. If you are interested in investing in a commodity ETF, the iShares S&P GSCI Commodity-Indexed Trust (GSG) is a good option to consider.

Investors should be aware that commodities are highly volatile before investing in them. Investor caution is advised in commodity trading. If there is a small change in the amount of a good that is available because of a geopolitical conflict, the prices of commodities can go up.

6. The S&P 500

Over the long term, stocks have the most potential to increase in value. In general, businesses that require little capital gain from inflation while businesses engaged in natural resources lose from inflation.

The S&P 500 is currently heavily weighted towards technology and communication businesses. They hold a 35% stake in the index, which consists of technology and communication services. These are businesses that don’t require a lot of capital, so they should theoretically do well in an inflationary environment.

If you are interested in investing in the S&P 500, an index of the 500 largest U.S. public companies, or if you would prefer an ETF that tracks it, look into the SPDR S&P 500 ETF (SPY).

The main disadvantage of investing in the S&P 500 Index is that it is a passive investment. The Index is heavily biased towards larger companies. Small-cap companies have historically outperformed the S&P 500, providing investors with greater exposure and returns.

7. The Bloomberg Aggregate Bond Index

The Bloomberg Aggregate Bond Index is a market index that measures the U.S. bond market. This means that the index includes bonds from the US government, as well as corporate and municipal bonds. There are two ways to invest in this index: by investing in funds that aim to replicate the performance of the index, or by investing in the index itself. Aggregate Bond ETF The iShares Core U.S. Aggregate Bond ETF tracks an index of many funds. Aggregate Bond ETF (AGG).

There are some disadvantages to investing in the Bloomberg U.S. Aggregate Bond Index as a core fixed-income allocation.

The index is biased in favor of companies and agencies with the most debt. Unlike the S&P 500 Index, which is market-capitalization-weighted—the bigger the company, the bigger its position in the index—the largest components of the Bloomberg U.S. The companies and agencies with the most debt outstanding are the Aggregate Bond Index. This fund is not well-diversified across sectors because it is heavily weighted toward U.S. government exposure.

8. Leveraged Loans

A leveraged loan is a loan that is made to companies that already have high levels of debt or a low credit score. The loans that have a higher risk of the borrower defaulting on them are more expensive for the borrower.

A collateralized loan obligation is a type of investment that is typically used to refer to leveraged loans. This is a security that consists of multiple loans that have been combined. The investor gets regular debt payments from the loans they invest in. CLOs tend to have a floating rate yield, which makes them a good investment for those worried about inflation. Invesco Senior Loan ETF (BKLN) is a good option if you are considering this approach in the future.

There is always a risk associated with investments, including leveraged loans. However, there is the potential for greater rewards as well. Some risks of investing in funds that invest in leveraged loans are credit default, liquidity, and fewer protections.

If a borrower of a leveraged loan can no longer pay their debts, they may have to close their business. Leveraged loans are not as easy to buy or sell as publicly traded securities. loans that are backed by collateral have less protective measures for the lender than traditional loans If the borrower is unable to pay back the loan, the fund could be exposed to greater losses.

What’s The Worst Investment For Inflation?

The worst possible investment you could make in this current economic climate would be to keep cash on hand and sit on it.  Ray Dalio recently stated at the World Economic Forum that “Cash Is Trash

What about you, the reader?  Let us know what your favorite inflation busting investment is in the comments below.