4 Ways Investors Can Make the Most of Inflation - NerdWallet (2024)

Housing costs are up, groceries are up, and the stock market is down.

Inflation has some grim side effects, but could there be opportunities, too?

For investors, there might be a few. Depending on your long-term financial goals, there are opportunities to invest now and reap the benefits later. Finance professionals share four strategies investors can use to make the most of inflation and volatile stock prices.

1. Buy stocks 'on sale’

Inflation hit 8.2% for the 12 months ending in September, according to the Bureau of Labor Statistics. When inflation rises that high, it can cause market volatility and a dip in stock prices. Usually, when the cost of goods and services goes up, people spend less money and companies make less. The Dow Jones Industrial Average, for example, is down more than 14% for the year.

But these dips can create opportunities for investors to buy stocks, exchange-traded funds or mutual funds at a cheaper price, or "shop the sale."

“This is an opportunity for you to jump into those things you may want to purchase that you've been sitting on the sidelines [about] for a while because they've been so high,” says Reshell Smith, a certified financial planner and founder of AMES Financial Solutions in Orlando, Florida.

This strategy can be ideal if you’re investing for the long term and don’t need your money in the near future.

When the market picks back up — and historically, it always has — your investments could be worth more than you bought them for. Those who are closer to retirement or need their money soon may not be keen on buying stocks now, as they may not have time to wait for the market to rebound.

2. Target sectors that perform well during inflation

Some sectors do better than others during periods of high inflation, and this may be where long-term investors can tap in.

For example, real estate is a sector with potential for investors and it can generate income, says Stephanie Bucko, a chartered financial analyst and co-founder of Mana, a financial advice firm in Marina Del Rey, California.

Investors could choose to put their money in real estate investment trusts or physical property, she says. Real estate investment trusts, or REITs, are companies that own real estate that produces income, such as apartments, hotels or warehouses.

“There's tax efficiencies, there are income benefits, and from an inflationary perspective, real estate has historically done well when there's rising inflation,” Bucko says.

She adds that it’s an asset class that retirees and longer-term investors can use to support their portfolios or help balance it out during periods of market volatility.

She says such sectors may excel during inflation because they have goods and services that people need no matter what — think gas, groceries and medications.

3. Take advantage of high-yield saving accounts

Some people may have reservations about investing in the market while it’s down and would prefer to pull back until it stabilizes.

If you feel seen after reading that, you could consider putting your money into a high-yield savings account.

As the Federal Reserve continues raising rates to curb inflation, interest rates on some high-interest savings accounts have gone as high as 3% annual percentage yield. By comparison, the national average for a saving account APY is 0.21%. If your emergency fund is kept in a regular savings account, it could be time to consider a high-interest account instead.

You could also take some of the money you might have invested and save it, depending on your long-term goals and when you might need the money.

“Are there expenses that you have in the next two years? If so, it's really hard to predict the direction of stocks over that short of a period of time, so then we'd recommend keeping it in cash,” Bucko says.

If you don’t need the money in the next two years and are optimistic about the market making a comeback, Bucko says investing in stocks and bonds could provide a better return on your investment.

4. Explore opportunities for increasing income

The previous suggestions may be helpful, but not so much if you don’t have disposable income to invest.

“There are certain groups of people that inflation is probably gonna hit a little bit harder than others,” Smith says.

People who work in lower-paying jobs, for example, are feeling the pinch more than others, she says.

Increasing your disposable income where possible can give you more money to invest or save, and both can be helpful to your finances. To increase your cash flow, consider exploring side hustles, more lucrative job opportunities, or negotiating a pay raise at your current job.

But Smith says to start with what you have; you don’t need a lot of money to start investing. Some communities assume that if they don't have a lot of disposable income, they can't invest, and that's not always true.

“I think that is a myth that Black and brown people have,” says Smith, who identifies as Black. “If you have $100, you can start there. If you have $50, you can start there. You just need to do it consistently. You need to have a strategy, and you need to have discipline, and you can do that on an ongoing basis.”