What investments do not do well in inflation?
While inflation's effects on the economy and asset values can be unpredictable, history and economics offer some rules of thumb. Inflation is most damaging to the value of fixed-rate debt securities because it devalues interest rate payments as well repayments of principal.
Common anti-inflation assets include gold, commodities, various real estate investments, and TIPS.
Commodities (Non-Gold)
An investment in commodities can be one of the most powerful inflation hedges. Raw materials and agricultural products can be traded like securities. Commodities traders commonly buy and sell oil, natural gas, grain, beef and coffee, among others.
Don't pile on the credit card debt
But racking up credit card debt during periods of high inflation is a double-whammy. First, you're going to have to pay that money back. And if you're already feeling a financial pinch, adding a higher monthly payment isn't going to help.
For investors, bonds are considered most vulnerable to inflationary risk.
Examples include diversified index funds, as well as carefully investing in things like gold, real estate, Series I savings bonds and TIPS.
The bottom line
Investing in precious metals, like gold and silver, can protect your portfolio's value amid rising inflation. Moreover, real estate investments may give you a way to generate a regular income while you protect your portfolio from the dollar-devaluing impact of mounting inflation.
Keep the money you set aside for the future in a savings account that earns dividends so that your balance gradually increases over time. This can be an effective way to combat inflation. If you have some money you won't need to access immediately, consider share certificates.
What is an inflation-proof investment? An inflation-proof investment is an investment that tends to maintain its value during inflationary times by growing with or faster than the inflation rate.
Less expensive tangible assets that do well during inflation include many types of commodities. Agricultural commodities like wheat, corn, soybeans, livestock and timber are among such commodities. Industrial metals like nickel, copper and steel also tend to do well during inflation.
Who benefits from inflation?
Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.
The real value of debt decreases when inflation is high. Think of it this way: While wages don't always keep up with inflation when prices are rising rapidly, they do tend to increase during these periods, and that can make it easier to cover the payments on a fixed-rate loan product such as a mortgage or student loan.
1. High-yield savings accounts. Overview: A high-yield savings account at a bank or credit union is a good alternative to holding cash in a checking account, which typically pays very little interest on your deposit. The bank will pay interest in a savings account on a regular basis.
- High-yield savings accounts.
- Money market funds.
- Short-term certificates of deposit.
- Series I savings bonds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
- Best safe stocks to buy.
- Berkshire Hathaway.
- The Walt Disney Company.
- Vanguard High-Dividend Yield ETF.
- Procter & Gamble.
- Vanguard Real Estate Index Fund.
- Starbucks.
- Apple.
- Stocks.
- Real Estate.
- Private Credit.
- Junk Bonds.
- Index Funds.
- Buying a Business.
- High-End Art or Other Collectables.
| Company (TICKER) | Yearly EPS Growth Estimate (5-Year Average) |
|---|---|
| Church & Dwight Company, Inc. (CHD) | 9.1% |
| Becton, Dickinson and Company (BDX) | 8.7% |
| Mondelez International, Inc. (MDLZ) | 8.4% |
| CMS Energy Corporation (CMS) | 7.8% |
Inflation is a bond's worst enemy. Inflation erodes the purchasing power of a bond's future cash flows. Typically, bonds are fixed-rate investments. If inflation is increasing (or rising prices), the return on a bond is reduced in real terms, meaning adjusted for inflation.
| ASSET | DECADE | % RETURN |
|---|---|---|
| Chevron (CVX) | 1970s | 228.34% |
| Deere (DE) | 1970s | 226.9% |
| McDonald's (MCD) | 1970s | 209.77% |
| FedEx (FDX) | 1970s | 206.19% |
Traditionally, investments such as gold and real estate are preferred as a good hedge against inflation.
What are the best real assets to invest in?
Key Takeaways
Real assets offer stability and appreciation over time, providing a hedge against stock market volatility. Popular real asset investments include brick-and-mortar real estate, raw land, precious metals and commodities.
Any money that you plan to deploy for a short-term goal — one happening in the next one or two years — is best kept in cash, Benz notes. Because there is no chance of a decline in value, “cash is the best option, even if inflation is a risk factor,” she says.
Let's understand the concept in simple words, Inflation means “The prices of day-to-day goods and services increase where the value of money decreases, which results in more money having to be spent for buying fewer goods. In short, the value of money decreases while goods and services prices go up.
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
- Certificates of deposit (CDs) ...
- Workplace retirement plans. ...
- Traditional IRAs. ...
- Roth IRAs. ...
- Stocks. ...
- Bonds. ...
- Mutual funds. ...
- Exchange-traded funds (ETFs) Similar to mutual funds, ETFs offer access to pooled investments like stocks and bonds.
