This article contains the best asset classes for protection against inflation. Inflation causes the prices of goods and services to rise. That’s why you can’t use the same amount of money you used to buy goods a few years ago to purchase them now.
Inflation causes the purchasing power of your cash to drop. Moreso, to this, you can’t just keep your money in a saving account because it can lose its value over time.
Best Asset Classes for Protection Against Inflation
So, one way to combat inflation is to invest. With the right investing strategies and assets that have a hedge against inflation, you could secure your cash. This list of assets in this article has a hedge against inflation. They could even help you benefit more when inflation occurs. Check them out below
Commodities refer to assets like agricultural products and raw materials. This includes grains, natural gas, oil, electricity, beef, orange juice, precious metals, wheat, corn, and more. One thing about commodities is that their prices always increase with inflation. This makes investors get returns even when there is inflationary pressure.
Commodities usually come to the mind of investors when they are looking for a hedge against inflation. Moreover, you can either purchase commodities through commodity stocks or Exchange-traded Funds (ETFs).
Gold is a physical asset. This asset tends to hold value over time even when under inflationary pressure. During inflation, they preserve their purchasing power for long periods. Moreover, in countries where their native currency is losing value, they tend to use gold as their alternate currency.
Although gold doesn’t always protect against inflation in the short term, it tends to keep up over the long term. It is one of the best investments you should add to your portfolio if you want a hedge over inflation.
Similar to gold, real estate is a physical asset that tends to hold its value during inflation. During inflation, as the prices of goods and services increase, so does the price of real estate. That’s why you can see that your landlord can increase your house rent when the prices of goods and services go up in a country.
So, during inflation, real estate investment also tends to yield income for investors. Moreover, asides from home ownership, you can also invest in real estate through REITs. Or, through mutual funds that invest in REITs.
Investing in equities is not just a way to diversify your portfolio, but it also gives you inflation hedges. Equities like dividends and growth stocks are publicly traded in the stock market by companies.
And if you invest in equities sold by companies with high pricing power, you could get good returns during inflation. That’s because the such company could increase its prices to maintain profit. So, if you are interested in investing in equities, look out for companies with good pricing power.
TIPS (Treasury Inflation-Protected Securities)
TIPS are bonds sold by the US Treasury. This asset class also has a hedge over inflation. As the inflation rate increases, so the payout from TIPS also rises and vice versa.
TIPS pay out with fixed interest rates twice every year and they have varying maturity dates. While some could mature within five years, others could take up to 30 years. And at the maturity date, you’ll receive the original principal you invested plus the adjusted principal.
Whole Life Insurance
A whole life insurance contract could act as lifetime coverage and a hedge against inflation. Although this investment is not completely inflation proof. But if your insurance company performs well, you’ll receive dividends and benefits even during inflation.
When you keep your money in bonds, it’s just like keeping your money in CDs or savings accounts. Your money will be kept safe while an interest rate will be paid on it. But when inflation leads to a higher interest rate, short-term bonds are more resilient when compared to long-term bonds.
The price of fine wine also rises with inflation. This makes them a perfect investment to add to your portfolio as they tend to yield returns at all times. You can either buy fine wine or store them yourself to sell out at a higher price later.
What Are the Major Classes of Assets?
The major asset of classes is
- Real estate.
- Fixed income.
- Cash and cash equivalents.
Which Assets Do Best During Inflation?
When inflation or economic crisis occurs, some sectors that still do well and even benefit from it are
- Financial companies.
- Consumer staples.
- Real estate.
What Should I Buy Before Hyperinflation Hits?
Some of the best assets to purchase to have a hedge against inflation are
- Real estate.
- Short-term bonds.
What Are the Worst Investments During Inflation?
During times of inflation or recession, you should avoid investing in high-yield bonds, stocks of highly-leveraged companies, and consumer discretionary companies.
What Stocks Do Well During Inflation and Recession?
Some stocks that well during inflation and recession are
- McDonald’s Corporation.
- Walmart Inc.
- Johnson & Johnson.
- Procter & Gamble Corporation.
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