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How To Insulate Your Investments Against Inflation

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How To Insulate Your Investments Against Inflation

As an investor, there are steps you can take to protect your portfolio in times of high inflation. Here are five ways to insulate your investments against inflation.

1. Invest in gold

Gold has always been considered a hedge against inflation. When currencies across the world are losing value or fluctuating in value, gold is a constant — a real, physical asset that will always have value.

It’s important to note that gold is not a perfect hedge against inflation. Investing in gold instead of an asset that can yield interest can mean missing out on higher dividends during a time of inflation, so make it just a part of your overall strategy.

2. Reconsider the bonds in your portfolio

Asset prices often rise in inflationary environments. Unfortunately, though, when interest rates rise, the value of bonds can decrease. Under these circumstances, it can be wise to consider a nonconventional approach toward balancing your portfolio and decreasing bond allocation for better returns.

3. Consider TIPS

Treasury Inflation Protected Securities (TIPS) are government-backed bonds issued by the United States Treasury with an inflation protection component. As government-issued securities, there’s no risk of these bonds defaulting.

In addition, TIPS have an inflation rider that automatically adjusts the value of your principal along with the Consumer Price Index. Read more about TIPS here.

4. Include stocks in your portfolio

If you don’t already, get some stocks in your portfolio during a time of rising inflation. They hedge against inflation in two ways.

First, stocks pay dividends, which increase along with the company’s profits. In contrast, bonds pay a fixed amount, which automatically falls along with the value of the dollar.

Second, stocks provide growth, as a broadly diversified portfolio generally moves higher over a prolonged period of time. Stocks can provide you with the funds you need to maintain your standard of living even when the inflation rate increases.

5. Real estate

Real estate has experienced an explosion since the coronavirus pandemic began, and it can be a great hedge against inflation for the savvy investor.  If you can swing it financially, adding real estate to your portfolio can help increase your cash flow when the cost of living rises due to inflation.

It’s possible to insulate your investments against inflation with these tips. Find more financial tips like this on our MoneySmart Tips blog.


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