Inflation reduces the purchasing power of your cash. Moreso, for this, you can’t just keep your money in a savings account as it may lose its value over time.
Best asset class for protection against inflation
So, one way to combat inflation is through investment. You can protect your cash with the right investment strategies and assets that hedge against inflation. This list of assets in this article contains a hedge against inflation. They can even help you benefit more when inflation occurs. Check them out below
Commodity refers to resources such as agricultural products and raw materials. These include 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 results in investors getting returns despite inflationary pressures.
Commodities usually come to investors’ minds when they are looking for a hedge against inflation. Moreover, you can either buy commodities through commodity stocks or exchange-traded funds (ETFs).
Gold is a physical asset. These assets hold value over time even under inflationary pressures. During inflation, they conserve their purchasing power for a long time. Moreover, countries where their domestic currency is losing value tend to use gold as their alternative currency.
Although gold does not always protect against inflation in the short term, it does in the long term. If you want a hedge against inflation, this is one of the best investments to add to your portfolio.
Like gold, real estate is a physical asset that retains its value during inflation. During inflation, as the prices of goods and services rise, so do the prices of real estate. This is why you may find that your landlord may increase your rent if the prices of goods and services in a country rise.
So, during times of inflation, real estate investments tend to provide income for investors. Moreover, apart from home ownership, you can invest in real estate through REITs. Or, through mutual funds that invest in REITs.
Investing in equities is not only a way to diversify your portfolio, it also gives you inflation hedges. Equities such as dividend and growth stocks are publicly traded by companies on the stock market.
And if you invest in equities sold by companies with high pricing power, you can get good returns during inflation. Because such companies can raise prices to maintain profits. So, if you are interested in investing in equities, look for companies with good pricing power.
TIPS (Treasury Inflation-Protected Securities)
TIPS are bonds sold by the US Treasury. This asset class has a hedge on inflation. As the inflation rate rises, so do the payouts from TIPS and vice versa.
TIPS pay twice per year with fixed interest rates and their maturity dates vary. Some may mature within five years, while others may take up to 30 years. And on the maturity date, you will get the principal adjusted to the principal invested by you.
Whole life insurance
A whole life insurance contract can serve as lifetime coverage and a hedge against inflation. Although this investment is not completely inflation proof. But if your insurance company performs well, you will get dividends and benefits even during inflation.
Short term bonds
When you put your money in bonds, it’s just like putting your money in a CD or savings account. Your money will be safe and will earn interest. But when inflation leads to higher interest rates, short-term bonds are more resilient than long-term bonds.
Fine wine prices also rise with inflation. This makes them a perfect investment to add to your portfolio as they always give returns. You can either buy fine wines or store them yourself to sell at a higher price later.
What are the main classes of assets?
The main asset of the class is
- fixed income.
- Cash and cash equivalents.
Which asset performs best during inflation?
When inflation or economic crisis occurs, there are still some sectors that do well and even benefit from it
- Financial companies.
- The consumer is prime.
What should I buy before hyperinflation hits?
A hedge against inflation is some of the best assets to buy
- Short term bonds.
- the gold
What is the worst investment during inflation?
During inflation or recession, you should avoid investing in high-yield bonds, high-leverage company stocks, and consumer discretionary companies.
Which stocks do well during inflation and recession?
Some stocks do well even during inflation and recession
- McDonald’s Corporation.
- Walmart Inc.
- Johnson & Johnson.
- Procter & Gamble Corporation.