10 Ways to Hedge Against Inflation (And What To Avoid)

Last updated: Oct 3, 2022

A green hedge.

Inflation hurts everyone and forces us to think differently to protect ourselves. Some investments and assets tend to be better at hedging against inflation.

1 Stocks Inflation Hedge

Long-term stocks are a great way to hedge against inflation. But it doesn't feel like that and especially not in the short term.

The printed money will all be going to businesses eventually. Stocks should continue to perform well over time.

Company profits increases during this time since the money supply is getting diluted.

But some stocks tend to perform better than others.

Value Stocks

These are going better in inflation times and tend to stay about the inflation rate in the long run.

Often these have a lot of tangible value. And tend to at least somewhat follow inflation.

If you own a bag of rice, it will probably follow inflation. And that is true for much more than rice.

Growth Stocks

These tend to perform worse and fall even more when the rates rise. Growth stocks need that future cash flow from inflation.

In the short term, these hurt even more than value stocks. Inflation alone does not cause crashes, but these stocks may crash a bit.

Corporate earnings often grow faster when inflation is higher. Because this indicates people are spending and the economy is growing.

2 Real Estate Inflation Hedge

Property valuations & rents should rise with inflation. The property valuations rise first. Then more slowly does the rents.

These can be good dividend players and can be a steady income stream.

You don't have to buy properties but can buy them in the form of REITs or stocks. And that can anyone afford.

3 Commodities Inflation Hedge

Commodities perform very well during inflation times.

But they are performing well when there's been sudden inflation. And during none inflation, it seems to underperform.

Commodities are better for the short-term. And not anyone is performing as well.

The best type has been energy commodities.

Gold is a commodity that hedges inflation. But on average for a century so gold may be good to give to your grandkids.

Won't probably be the best bet against one single time of high inflation.

4 Treasury Inflation-Protected Securities (TIPS)

These often pay worse than other bonds but offer protection against inflation.

These can give a pretty solid return compared to regular bonds.

Guaranteed to hedge against inflation. No other asset does this.

For example, you buy a $ 100 TIPS for a fixed rate of 2% return. You will receive 2% if there is no inflation.

But let's say the inflation is 10%, then your face value would be $110, and with a 2% return, you would have earned $2,1.

Another good thing about TIPS is if there's deflation. You are locked in your initial investment and could never have a start value of less than what you paid.

Inflation for TIPS is measured by the CPI Index.

5 Stocking Up on Consumables.

Food prices follow inflation rather quickly, and you need to eat anyways. Stocking up on raw ingredients with a good shelf life should hedge against inflation.

But not just food but all other things can be good to stock up on. Think of these as commodities you need.

There are other benefits of doing this. Such as possible better bargains, bulk discounts, and less time spent at stores.

But one big drawback is that these only follow inflation. And in most cases doesn't rise in any more value.

You can't buy up on beans and hope to retire on that. Doing this in moderation is the best way.

6 High-Yield Savings Account

Higher yields are more commonly available during times of high inflation. The FED will most likely raise the interest rates.

Meaning banks have to pay more to lend money to the government. So they are willing to pay us a bit more.

Cash isn't always the worse thing to have. And there is a certain amount of money needed or left over from previous investments.

7 Debt

Debt is often a big no-no, and for good reasons. But if you have a sound investment, locked interest rate, and during high inflation, you can have a high profit.

Debt should get cheaper to pay for due to inflation getting higher. Leverage is a powerful tool but also adds risks which is why it's so widely used and feared by businesses.

8 Hard Real Assets

Like paintings, fine wines, and most other tangible assets.

These can be harder to appraise but should hold their value.

9 Look International

Other countries with other currencies can have different inflation numbers. These can be for the better or worse.

For example, buying stocks in another country can give a good hedge against our inflation.

And other currencies also provide more diversification which should make our investments safer.

10 Rebalancing Portfolio

Some investments can go from cheap to expensive pretty quickly. All while new investment opportunities arrive.

It can be good to sell what's expensive and buy what's cheap. If you have anything you think can offer a better return.

It doesn't just mean for stocks but anything. If something, anything looks much more expensive. Start looking for new opportunities.