Luis Pazos 
The latest from the US Bureau of Labor Statistics shows the inflation rate at 3.4%. This has been worsened by the Russian invasion of Ukraine and supply shortages impacting various sectors like food, energy, and computer chips. Meanwhile, the Federal Reserve is counteracting this by raising interest rates. The dual pressure of increasing inflation and interest rates is straining both investment portfolios and household budgets across America.
Managing rising costs is a personal decision, but we can guide you with what we believe are the top five investment hedges against inflation to safeguard your portfolio. We’ll break down each option, but here’s a quick overview of our picks:
Best Investment Hedges Against Inflation:
- Gold & Gold ETFs: Ideal for high inflation and general economic instability. You can start with as low as $50 to $200 for a small denomination bullion coin or an ETF share. Gold is particularly effective in high-inflation periods.
- Energy & Commodities: Great for combating consumer-level inflation, especially in food and energy. Investing is straightforward, often just the cost of one ETF share.
- Real Estate & REITs: Best for long-term protection, real estate generally appreciates even during various economic climates. Options range from individual properties to REITs and crowdfunding with minimal upfront costs.
- Treasury Inflation-Protected Securities (TIPS): Ideal for safeguarding your principal investment. With a minimum of $100, TIPS adjust the principal based on market inflation, making it a safe bet.
- 60/40 Stock/Bond Portfolio: Provides consistent long-term returns. This mix can buffer against inflation while maintaining growth potential.
Gold and Gold ETFs
Minimum Investment: $50 to $200
Risk Level: Moderate to high
Fees: None for ETFs; 5-10% for bullion coins
Where to Invest: Online precious metal dealers; brokers like E*TRADE and TD Ameritrade
Gold historically performs well during high inflation. You can start with a small ETF share or small denomination coins.
Energy and Commodities
Minimum Investment: Cost of one ETF share
Risk Level: Moderate to high
Fees: None
Where to Invest: E*TRADE, TD Ameritrade, Robinhood
Energy ETFs like the Invesco DB Commodity Index Fund cover diverse sectors and offer substantial returns even during challenging economic times.
Real Estate and REITs
Minimum Investment: $10 and up
Risk Level: Moderate
Fees: 2-3% for real estate crowdfunding
Where to Invest: Fundrise, E*TRADE, TD Ameritrade
Real estate can be a solid long-term investment. Options include direct property investment, REITs, or real estate crowdfunding platforms like Fundrise.
Treasury Inflation-Protected Securities (TIPS)
Minimum Investment: $100
Risk Level: Low
Fees: None
Where to Invest: Treasury Direct
TIPS adjust based on the Consumer Price Index, making them a low-risk, inflation-protected option.
60/40 Stock/Bond Portfolio
Minimum Investment: $1 and up
Risk Level: Moderate
Fees: None
Where to Invest: Robo-advisors like Betterment and brokers like E*TRADE
This balanced mix adapts to market conditions and can include alternative investments like gold or real estate for added protection.
What Is Inflation?
Inflation means prices are rising and the value of the dollar is falling. Over the past 20 years, the cost of living has jumped nearly 63%, while specific items like gasoline have seen even sharper increases. To maintain your portfolio’s value, it’s crucial to invest with inflation in mind rather than holding onto cash.
Are We Headed for a Recession?
Predictions vary, but several major financial institutions foresee a possible recession by 2024. What’s important is to prepare and adjust your investments to withstand a potential downturn.
How Can I Protect My Portfolio?
If you’re new to investing, you might want to wait for market conditions to change. However, more experienced investors should consider adjusting their portfolio to improve returns and hedge against inflation. No portfolio is fail-proof, but making informed decisions based on historical trends can help.
Summary
To recap, here are the five best investment hedges against inflation:
- Gold & Gold ETFs: For high inflation and general instability
- Energy & Commodities: For consumer-level inflation, particularly food and energy
- Real Estate & REITs: For long-term protection
- TIPS: For protecting your principal investment
- 60/40 Stock/Bond Portfolio: For all-weather investing
In a fluctuating economy with rising inflation and interest rates, keeping a long-term perspective is essential. Adjust your investments to reduce inflation’s impact and maintain growth potential.
