What to do during inflation?

Answered by Robert Dupre

During an inflation surge, it’s important to make smart investment decisions to protect your wealth and potentially even benefit from the rising prices. Here are some recommendations from experts on where to put your money during inflation:

1. TIPS (Treasury Inflation-Protected Securities): TIPS are specifically designed to protect against inflation. They are government bonds that have their principal adjusted for inflation, providing investors with a guaranteed return above the inflation rate. This makes TIPS a reliable option for investors looking to preserve their purchasing power.

2. Cash: While cash may not offer significant returns, it is often overlooked as an inflation hedge. Holding cash allows you to maintain liquidity and take advantage of potential investment opportunities that may arise during inflation. It’s always wise to have some cash on hand to cover any immediate needs or emergencies.

3. Short-term bonds: Short-term bonds tend to be less sensitive to interest rate fluctuations, making them a suitable choice during inflationary periods. These bonds typically have a maturity period of one to three years, providing investors with relatively stable returns while mitigating the potential impact of rising interest rates.

4. Stocks: Historically, stocks have performed well during inflationary periods. Companies can often pass on increased costs to consumers through higher prices, which can contribute to rising stock values. However, it’s crucial to choose stocks wisely and focus on companies with strong fundamentals and pricing power.

5. Real estate: Real estate can be a good hedge against inflation as property values generally rise with inflation. Additionally, rental income can increase over time, providing a potential income stream that can keep pace with inflation. Investing in real estate can be done through direct ownership, real estate investment trusts (REITs), or real estate crowdfunding platforms.

6. Gold: Gold has long been considered a safe haven asset during periods of inflation. Its value tends to rise as the purchasing power of fiat currencies declines. Gold can be purchased in physical form such as bullion or coins, or through gold exchange-traded funds (ETFs) and gold mining stocks.

7. Commodities: Commodities, such as oil, natural gas, and agricultural products, often see price increases during inflationary periods. These tangible assets can provide a hedge against rising prices and can be accessed through commodity ETFs or commodity futures contracts.

8. Cryptocurrency: While a relatively new asset class, some investors view cryptocurrencies like Bitcoin as a potential hedge against inflation. The decentralized nature of cryptocurrencies and their limited supply can make them attractive during periods of monetary inflation. However, it’s important to approach cryptocurrency investments with caution due to their volatility and potential regulatory risks.

It’s worth noting that these recommendations are not one-size-fits-all and should be tailored to individual risk tolerance, investment goals, and financial circumstances. Diversification across different asset classes is also crucial to mitigate risk and enhance the chances of achieving long-term financial success. Consulting with a financial advisor can provide personalized guidance based on your specific situation.

Personal experience: During previous inflationary periods, I have found diversifying my investments across various asset classes to be beneficial. I allocated a portion of my portfolio to TIPS, as they provided a reliable source of inflation protection. Additionally, I invested in stocks of companies with strong fundamentals and pricing power, which performed well despite rising prices. Real estate also proved to be a valuable asset during inflation, as rental income increased over time and property values appreciated. However, it’s important to regularly assess and adjust investments based on changing economic conditions and individual goals.