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The 8 Best Inflation Hedges to Protect Your Investments in 2024

Rising inflation has been a hot topic of conversation in financial outlets for some time, and for good reason. Recently, there’s been a post-pandemic surge in spending mixed with low interest rates on loans, leading to increasing demand on a finite supply of goods, and thus rising prices. 

In such an inflationary environment, your dollar is losing purchasing power, which could be a bad thing for your retirement savings and certain assets in your investment portfolio. 

Adding allocation to inflation hedges is one of the best ways to protect the purchasing power in your portfolio. What are the specific inflation hedges investors should consider in 2022?

Best Inflation Hedges of 2022

Inflation hedges are an important part of any well-diversified portfolio, especially this year as high inflation seems to persist. If you’re thinking about adding an inflation hedge or two to your portfolio, consider the following options:

1. Precious Metals

Precious metals like gold, silver, platinum, and palladium have long been viewed as inflation hedges, and for good reason. Over the long term, growth in the prices of precious metals has outpaced the rate of inflation, providing solid, long-term inflation protection. 

The reason is simple: precious metals have various uses. They are the raw material for jewelry and used in industries like medical equipment and electronics manufacturing. 

The price of materials used to make end-user products rise as inflation rises, making investments in useful metals a great way to protect the power of your money. 

How to Buy Precious Metals

There are a few different ways to invest in precious metals:

  • Physical Investments. One of the most common options is to buy physical precious metals, like gold and silver bullion, and store them in a safe place. 
  • Invest In Mining Companies. As the prices of gold, silver, and other metals go up, miners generate more profits from their operations. As a result, mining stocks are a great way to tap into this asset. 
  • Precious Metals Funds. You can also invest in exchange-traded funds (ETFs) and mutual funds centered around investments in precious metals. These funds may invest in the companies that produce precious metals or companies that fund production in exchange for a percentage of the yield or a steep discount on the end product. 

2. Commodities

Precious metals are one type of commodity, but they’re not the only commodity that rises in value in an inflationary environment. In fact, all commodities are known to increase in price when consumer prices rise, making them a good inflation hedge. 

The term commodity can describe a wide range of raw materials including:

  • Agricultural Products. Wheat, corn, beans, and more will increase in price in times of high inflation. 
  • Livestock and Animal Products. Meat, milk, and eggs are staples in the American diet and the United States economy. When prices rise, these products tend to follow. 
  • Building Materials. Iron ore, stone, wood, and other building materials tend to be hot commodities when inflation rises. This is especially true when a prime source of inflation is a hot real estate market, as has been the case in 2022. 
  • Energy. Oil and natural gas are crucial commodities used to meet the energy, heat, and transportation needs of developed countries. They also tend to rise in value when consumer prices climb. This has been the case throughout the beginning of 2022. According to Business Insider, oil prices were up nearly 30% year-to-date as of April 2022. 

How to Buy Commodities

While it’s possible to buy physical commodities, most people don’t have the storage capacity or desire to store large amounts of these products. The best way to tap into commodities is to purchase mutual funds and ETFs designed to track the commodities market. 

When doing so, pay close attention to the commodities the funds are invested in. You’re best served by investing in commodity funds with diverse holdings. Also, pay close attention to expense ratios to ensure that your portfolio’s expenses are kept to a minimum. 

3. Stocks

One of the best ways to hedge against inflation as an investor is to stay invested in the stock market. Historically, well-diversified portfolios of stocks have generated about 10% annual returns, which is far higher than the inflation rates experienced in the past 40 years. 

The reason stocks generally tend to outperform inflation is simple. Stocks represent companies that generate more profitability when consumers are willing to pay higher prices. n times of high inflation when consumers pay more, corporate profitability tends to skyrocket, sending stocks surging for the top.

How to Buy Stocks

There are several ways to buy stocks. The most common include:

  • Open a Brokerage Account. Open a brokerage account with an online broker like Robinhood, TD Ameritrade, or E*Trade to purchase the stocks you’re interested in. 
  • Sign Up With a Robo-Advisor. You can also gain exposure to stocks with little market knowledge or research required by signing up for a robo-advisor that handles the investing process for their customers, such as Betterment or Acorns
  • Invest In Funds. Investment-grade funds like ETFs and mutual funds provide access to the market as a whole or specific sectors of the market. They’re a great way to tap into the growth on Wall Street.  

4. Real Estate

Property values tend to fly when inflation rates are high. Growth in the real estate market in 2021 and the beginning of 2022 has validated this fact, and investing in real estate is a great way to protect your purchasing power as 2022 continues. 

Although the Federal Reserve has increased its fed funds rate, its increases have been minimal, meaning interest rates on mortgages are still relatively low. As a result, the housing market is booming with demand. Unfortunately, there’s not enough supply to meet that demand, resulting in fast-paced growth in real estate prices. 

There’s a strong chance that this trend will continue through the rest of the year and even into 2023, creating an opportunity for those considering investing in real estate.

How to Buy Real Estate

There are a few options for purchasing real estate as an investment, including:

  • Buy Physical Real Estate. Although inventories are quite low, you may still be able to find good deals on residential, commercial, or agricultural real estate in your area. Do your research to find out what’s available. 
  • Buy Real Estate Investment Trusts (REITs). Real estate investment trusts (REITs) work like ETFs. However, instead of owning stocks and commodities, these funds focus their investments on real estate, sharing their profits with their investors. 
  • Real Estate Crowdfunding. There are multiple real estate crowdfunding websites that allow members to pool money together with their peers to purchase real estate. All members involved in the purchase of each property share in the price appreciation and income from the investment based on the amount of money they have in the deal.  

5. Treasury Inflation-Protected Securities (TIPs)

In general, investors steer clear of bonds and other fixed-income investments when the rate of inflation is high. That’s because fixed-income investments pay relatively low fixed-rate returns that won’t keep up with high inflation. 

However, there’s one exception to the rule: Treasury inflation-protected securities (TIPS)

TIPS are a special type of U.S. Treasury bond. Like other bonds, TIPS come with coupon rates that stipulate returns for investors. However, unlike other bonds, TIPS are also tied to a benchmark that measures inflation, like the Consumer Price Index (CPI). Both the face value and coupon rate are adjusted for inflation, yielding higher returns when inflation levels are high and lower returns when inflation levels are low. 

How to Buy TIPS

The best way to buy TIPS is through the U.S. Treasury directly on its TreasuryDirect website. Simply sign up for an account, fund your account, and verify your identity. Once you’ve done so, search for the types of TIPS you’d like and place an order to buy them.  

6. Exchange-Traded Funds (ETFs)

Exchange-traded funds are a type of bucket investment, meaning fund managers pool investment dollars from a large crowd of investors. They then use the money to purchase shares of stock or other assets in accordance with the fund’s prospectus. 

These funds act as inflation hedges because their portfolios are generally made up of diversified groups of stocks. As mentioned above, the stock market generally grows at a faster rate than inflation. 

However, it’s important to look into the fund’s investment style before you invest. Some ETFs only invest in bonds. These may lose buying power when inflation is high because bonds are traditionally known for stable but low yields. 

How to Buy ETF Shares

The best way to buy shares of an ETF is to sign up with an online brokerage account. Once you’ve signed up, simply search for the ticker symbol representing the ETF you’re interested in buying and place an order to buy shares. 

7. Mutual Funds

Mutual funds are like ETFs for the most part. Mutual fund managers solicit investments from the investing community and use the money to buy assets in accordance with their prospectus. Like ETFs, mutual funds can be actively or passively managed with similar performance and expense metrics. 

Like ETFs, most mutual fund portfolios are made up of a diversified group of stocks, providing growth that generally outpaces the rate of inflation over time. However, like ETFs, there are several mutual funds that only invest in bonds. So, it’s important to compare your options and invest in funds with diversified, stock-heavy portfolios if you take the mutual fund route. 

8. Cryptocurrencies & NFTs

Web 3.0 has been a hot topic for the past year, and it seems as though investments in the space will continue. Web 3.0 includes cryptocurrencies like Bitcoin and Ethereum and non-fungible tokens (NFTs) representing unique pieces of digital art. 

The right investments in this space have created millionaires and have the potential to continue doing the same, making them a great potential way to hedge against inflation. 

The hedge is two-fold. First, some cryptocurrencies have experienced tremendous growth far and above the rate of inflation. Second, cryptocurrencies are digital assets that store value, at least in theory. So, when the dollar falls in value, it takes more of them to purchase crypto. 

However, cryptocurrency and NFT investments are based on speculation, and the industry is known for high levels of volatility and risk. So, crypto investments only work as inflation hedges for the most risk-tolerant investors.  

How to Buy Cryptocurrency & NFTs

Cryptocurrencies and NFTs can be purchased using online crypto exchanges. However, most cryptocurrency exchanges don’t support NFTs, and vice versa. Some of the most popular exchanges for these investments include:

For Cryptocurrency
For NFTs
  • Foundation
  • Myth Market
  • OpenSea
  • Rarible
  • SuperRare

Final Word

As 2022 continues to be the year of inflation, it’s becoming more and more important to adjust your investment strategy to accommodate higher consumer prices. As you look for strong opportunities that also act as inflation hedges, be sure to do your research and understand how the investment will benefit your overall portfolio’s balance before diving in. 

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.