Best Investments During Inflation: Your Ultimate Guide (2024)

Need help figuring out where to park your money during an inflation surge? Here are some of the best inflation-proof investments to consider:

Gold

Gold tends to hold its value even during inflation. Why? Because the Fed can’t inject gold into the economy like they can with cash, which means gold’s value isn’t based on the central bank’s actions. Instead, gold’s value comes from its inherent scarcity and difficulty to mine.

Investing in gold can sometimes mean buying a physical block of gold and locking it away in your safe. But you can also invest in Gold exchange-traded funds (ETFs). Investors poured around $7.3 billion into SPDR Gold Shares (the largest gold-backed ETF by asset) in just three months to combat inflation.²

Real estate

Real estate is traditionally used as a reliable hedge against inflation since property and rental values tend to increase as the price of goods and services rises.

Because the demand for homes and apartment rentals tends to remain constant regardless of economic conditions, owning real estate could provide investors with a steady source of income.

Purchasing a property typically requires a substantial upfront investment and is most likely not an option if you’re on a tight budget. Don’t worry, though: You can still invest in the real estate market with real estate investment trusts (REITs). You can buy them through an online brokerage account by purchasing shares of publicly traded REIT stocks ormutual fundsand ETFs that invest in REITs.

REITs operate portfolios of residential, commercial, and industrial properties and pay 90% of their taxable income to shareholders annually as dividends. And historically, they’ve outperformed the S&P 500 despite high inflation.³

Commodities

Besides precious metals, other commodities like agricultural goods and raw materials tend to perform well during inflation due to their inherent value.

Last year, Invesco DB Commodity Index Tracking Fund (DBC) — the largest broad basket commodity ETF by assets — rose nearly 18%, while the S&P 500 declined by approximately 20%.⁴If your investment portfolio doesn’t yet include any commodities, consider adding some to diversify your investments.

Though commodities are typically considered inflation hedges, some prices are more volatile than others. For example, global oil prices inflated to over $110 a barrel due to supply concerns during the conflict between Ukraine and Russia. If you’re interested in investing in commodities, consider more stable ones like gold or base metals instead.

Floating-rate bonds

Floating-rate bonds (FRBs) have aninterest ratethat is adjusted based on a predetermined formula.⁵In other words, if inflation increases, the interest rate on your FRBs also increases.

Because the interest rates on floating-rate bonds adjust according to the market conditions, FRBs can help you avoid market price volatility during inflation since there’s less opportunity cost. In layperson’s terms: Your FRBs’ returns will keep pace with the rising costs of goods and services, unlike traditional fixed-rate bonds.

Treasury Inflation-Protected Securities (TIPS)

Treasury inflation-protected securities are government-issued bonds designed explicitly to shield investors against inflation. The principal (face value) of TIPS adjusts with changes in inflation levels, ensuring that your investment keeps up with rising prices.

When TIPS mature, you receive either the adjusted principal or the original principal, whichever is higher. You can also indirectly invest in TIPS through ETFs, mutual funds, or short- or long-term bond funds.

Cash

While typically not an ideal long-term investment during high inflation, cash offers a unique advantage in uncertain times. Holding onto cash provides liquidity and flexibility, allowing you to capitalize on investment opportunities when market conditions are favorable.

That said, you should be cautious about holding too much cash, as the purchasing power of cash will decline over time. Instead, strike a balance between cash and other inflation-protected assets in your diversified portfolio.

You can also put your cash in ahigh-yield savings accountto protect some of its value against inflation.

Cryptocurrency

Cryptocurrency, particularly Bitcoin and Ethereum, has gained a lot of attention as an alternative asset class during periods of inflation. Some view cryptocurrencies as a hedge against the devaluation of traditional fiat currencies. Cryptocurrencies are decentralized and not directly influenced by central banks or government policies, making them less susceptible to inflationary pressures.

Unlike other investments like bonds, crypto is highly volatile and speculative, which means it comes with significant risks. A lack ofFDIC insurancemeans thatcryptocurrency investmentsdon’t offer the same level of protection as traditional bank deposits, like acertificate of deposit.