How to invest during inflation: Strategies & assets to consider (2024)

Inflation is a normal aspect of a growing economy. But when it gets too high for comfort, it can start to clash with your everyday budgeting decisions. Inflation in the U.S. reached 9.1% in 2022, the most since 1981, and while it has toned down, it remains higher than normal in 2023.

Inflation doesn't just make trips to the store more expensive. It can complicate your investing decisions as well. While investing during inflation could open you to some risk, embracing certain assets and strategies could keep you on even footing.

What causes inflation?

Inflation is the general rise in the prices of goods and services over time. When prices rise, that decreases the purchasing power of money, and each dollar buys fewer goods and services. Put another way, the same goods and services cost more now than they did before.

This happens when an economy has too much money chasing after too few goods. In economics, this is described as the law of supply and demand. When consumer demand for goods and services is abnormally high, inflation typically rises at a faster pace than the historical average of 3.27%.

Inflation also can stem from an unusually low supply of goods and services, assuming the demand remains constant. When inflation rose to a 40-year high in 2022, supply-chain disruptions reduced the availability of goods, while consumer demand stayed high, unemployment was low and households generally had more cash to spend. This trend continued into 2023, as inflation ebbed but remained stubbornly above historical averages.

Should you invest during inflation instead of just saving?

When faced with a climate of financial uncertainty, it can feel like the safest strategy is simply to save your money. But investing during inflation still has a place on the table.

Since inflation erodes your purchasing power, investing your money could help to prevent this by producing returns that match or exceed the average rate of inflation. That is the general goal of investing during inflation: to outpace the average rate of inflation over the long term. One generally acceptable inflation rate is around 2% or even a little lower. Certain types of investments will help you reach that goal better than others.

Where to invest during high inflation

Considering the goal to outpace inflation over time, these types of investments could be worth exploring when prices are high:

Stocks have historically outpaced inflation—annualized returns have averaged about 10% historically. Hypothetically, say inflation runs above average—at 4% per year—for the next 20 years. Let's also assume your stock portfolio performs below average—at 8% per year—during that time. You're still doubling the rate of inflation, which means you're growing rather than shrinking your wealth.

Inflation-protected bonds

Treasury inflation-protected securities (TIPS) tend to perform well despite inflation. These unique bond types are government securities designed to be indexed to inflation, as measured by the Consumer Price Index (CPI).

Real estate

Real estate investment trusts (REITs) are companies that own and operate income-producing real estate. Property values and rental income often rise along with inflation.

Gold

During times of uncertainty and rising prices, investors have historically used gold as a hedge. Keep in mind, though, that while gold is generally a store of value over time, prices can fluctuate in the short term.

Consumer staples

These are stocks of companies that sell items, such as health and food products, that people need even during times of economic difficulty. These investments are positioned to do better than stocks of companies selling non-essential products or services during inflationary periods. However, there's no guarantee they'll generate positive returns.

How to invest during inflation: Strategies & assets to consider (1)

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Inflation hedges

Inflation doesn't have to equal a total spending freeze. You can employ certain strategies to hedge against inflation in your savings and investing decisions.

Learn more

Strategies for investing during high inflation

As is always the case, investing involves risk. There are no guarantees—and investing during periods of inflation is no different. But with the right approach, you could help your finances outpace inflation over time.

Consider these strategies for protecting and growing your assets when inflation is eroding at purchasing power:

Diversify your investments

Diversification can help to reduce market risk during uncertain times. Because mutual funds are pooled investments that often hold dozens or hundreds of securities—stocks, bonds, cash or a combination of assets—in a single package, they can be smart diversification tools for any type of investor.

Leverage your employer match

If your employer offers a 401(k) with matching contributions, be sure to take advantage of this opportunity. For example, if your employer offers a 50% match for contributions up to 6% of your salary, try to contribute at least 6% of your pay. This is like getting a 50% rate of return on your investment, which is more than 10 times the average rate of inflation.

Consider the dollar-cost averaging strategy

When you make periodic purchases with a set dollar amount, such as monthly 401(k) or other retirement contributions, you buy more shares of investments when prices are low and fewer shares when prices are high. Over time, this can average out and reduce market risk compared with investing a singular lump sum amount. This is called dollar-cost averaging, which involves continuous investing. Therefore, investors should consider their long-term ability to make purchases through periods of low prices and varying economic periods.

Explore bond laddering or CD laddering

Bond yields and interest rates for certificates of deposit (CDs) typically rise during inflation, allowing investors to reduce interest rate risk and take advantage of higher interest rates by purchasing CDs or bonds with differing maturities.

Review your portfolio

Periodically check that you have the right mix of investments to grow your money over time while minimizing short-term risk. You occasionally may need to rebalance your portfolio, which involves buying and selling securities to restore your mix of investments to your original target allocations. You can do this yourself or with a financial advisor, who also can assess your risk tolerance and financial goals.

Tailor your financial goals with inflation-conscious solutions

Investing during high inflation means pinpointing the strategies that work for you and your family. As you begin implementing an investment strategy for inflation, consider reviewing your budget and working with a local Thrivent financial advisor to ensure your portfolio is prepared for the inevitable ebbs and flows of the economy.

How to invest during inflation: Strategies & assets to consider (2024)

FAQs

How to invest during inflation: Strategies & assets to consider? ›

Focus on growth stocks and funds.

How should you invest your money during inflation? ›

Considering the goal to outpace inflation over time, these types of investments could be worth exploring when prices are high:
  1. Stocks. ...
  2. Inflation-protected bonds. ...
  3. Real estate. ...
  4. Diversify your investments. ...
  5. Explore bond laddering or CD laddering.
Oct 6, 2023

What are the best assets for inflation? ›

Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.

What are the three investments one can make to beat inflation? ›

With any diversified portfolio, keeping inflation-hedged asset classes on your watch list, and then striking when you see inflation can help your portfolio thrive when inflation hits. Common anti-inflation assets include gold, commodities, various real estate investments, and TIPS.

How you might invest your money to be sure your income keeps up with inflation? ›

Take Advantage of High Rates

In fact, during times of higher inflation, many banks will offer higher rates on deposit accounts, which can help your earnings keep pace with rising prices. A high-yield savings account can have rates 20 to 25 times higher than a traditional account.

What are the best funds to beat inflation? ›

During inflationary periods, experts suggest making the most of your returns by investing in assets that have historically delivered returns that outpace the rate of inflation. Examples include diversified index funds, as well as carefully investing in things like gold, real estate, Series I savings bonds and TIPS.

What is the best asset to invest in? ›

Overview: Best investments in 2024
  1. High-yield savings accounts. Overview: A high-yield online savings account pays you interest on your cash balance. ...
  2. Long-term certificates of deposit. ...
  3. Long-term corporate bond funds. ...
  4. Dividend stock funds. ...
  5. Value stock funds. ...
  6. Small-cap stock funds. ...
  7. REIT index funds.

Is cash king during inflation? ›

Inflation: Inflation eats away at the purchasing power of cash. Because of that and the low yield of cash assets, cash steadily loses value. The time value of money: Because of inflation and other factors, cash is worth more now than it will be in the future.

What business thrive during inflation? ›

8 Sectors That Benefit From Inflation
  • Energy. Oil and gas companies stand to benefit because higher prices mean increased revenue, as the cost of the product being sold has gone up. ...
  • Transportation. ...
  • Financial Sector. ...
  • Utility Companies. ...
  • Healthcare Providers. ...
  • Consumer Staples. ...
  • Technology. ...
  • Industrial Stocks.
Feb 16, 2023

What assets are most affected by inflation? ›

Inflation and Asset Classes

Inflation has the same effect on liquid assets as any other type of asset, except that liquid assets tend to appreciate more slowly. This means that liquid assets are more vulnerable to the negative impact of inflation.

What is the most inflation-proof investment? ›

What are the most inflation-proof investments? Some common anti-inflation investments include gold, real estate, treasury inflation-protected securities, and floating-rate bonds. However, it's important to note that no asset class can offer 100% protection against devaluation – even among the assets mentioned above.

Where to park cash during inflation? ›

6 Inflation Investments for the Future
  • Equities. Equities generally offer a reliable haven during inflationary times. ...
  • Real Estate. Real estate is another tried-and-true inflationary hedge. ...
  • Commodities (Non-Gold) ...
  • Treasury Inflation-Protected Securities (TIPS) ...
  • Savings Bonds. ...
  • Gold.
Mar 1, 2024

What is one way to beat inflation? ›

Spending less than you earn and avoiding high-interest debt can set a strong foundation for your future. Build on it by keeping money on hand for emergencies, strategies to protect what you have, and investing for growth potential.

How to profit from inflation? ›

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.

What stocks do best during a recession? ›

The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.

How to not lose money to inflation? ›

Adding certain asset classes, such as commodities, to a well-diversified portfolio of stocks and bonds can help buffer against inflation. Be cautious about overallocating to cash, but make sure your emergency savings are keeping up with rising costs.

Where do you put money to keep up with inflation? ›

6 Inflation Investments for the Future
  • Equities. Equities generally offer a reliable haven during inflationary times. ...
  • Real Estate. Real estate is another tried-and-true inflationary hedge. ...
  • Commodities (Non-Gold) ...
  • Treasury Inflation-Protected Securities (TIPS) ...
  • Savings Bonds. ...
  • Gold.
Mar 1, 2024

Where should I put my money to avoid 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.

Is it worth investing during inflation? ›

For investors, returns on investments should be at least as high as the inflation rate. Otherwise, their investments are losing money even if they gain in dollar value. Similarly, individuals should ensure that their salaries keep pace with inflation; otherwise, they are losing buying power.

What is the best investment when interest rates are rising? ›

Bonds vs. stocks when interest rates and inflation are high
  • Bonds. The impact of rising interest rates on bonds is pretty straightforward. ...
  • Stocks. Stocks can be a solid hedge against both rising interest rates and rising inflation. ...
  • Stocks. Stocks generally outpace inflation in the long run. ...
  • Gold and commodities. ...
  • Real estate.
Mar 7, 2024

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