The Top 6 Investments for Inflation in 2023 - SmartAsset (2024)

FAQs

The Top 6 Investments for Inflation in 2023 - SmartAsset? ›

Commodities like gold, oil, and even soybeans should increase in price along with the finished products that are made with them. Inflation-indexed bonds and Treasury Inflation-Protected Securities (TIPS), tend to increase their returns with inflationary pressures.

Commodities like gold, oil, and even soybeans should increase in price along with the finished products that are made with them. Inflation-indexed bonds and Treasury Inflation-Protected Securities (TIPS), tend to increase their returns with inflationary pressures.

Another inflation-protected asset is precious metals such as gold, silver and platinum. Historically, these assets have shown a high degree of resiliency during prolonged periods of inflation. Investing in precious metals can also help diversify your portfolio if it's comprised mostly of stocks and bonds.

Invest in Gold

Moreover, gold investments have also beaten the average inflation rate in most years. Physical Gold- You can purchase gold coins, bars, or jewellery. Gold ETFs- These are open-ended mutual funds that offer exposure to gold without the high making charges and security concerns of physical gold.

4. Avoid Long-Term Fixed-Income Investments. The worst investment to put money into, during periods of inflation, are long-term, fixed-rate interest-bearing investments. These can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer.

You may also want to consider inflation risk as you figure out what kind of asset allocation to have in your portfolio. Fixed investments, like bonds or fixed annuities, can be adversely affected by inflation. To diversify, some investors choose to add gold or inflation-indexed investments to their portfolios.

Common anti-inflation assets include gold, commodities, various real estate investments, and TIPS. Many people have looked to gold as an "alternative currency," particularly in countries where the native currency is losing value.

Any money that you plan to deploy for a short-term goal — one happening in the next one or two years — is best kept in cash, Benz notes. Because there is no chance of a decline in value, “cash is the best option, even if inflation is a risk factor,” she says.

Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

How do rich people get richer during inflation? ›

The more people who go broke, the more money moves up. The result is the wealth continues to concentrate in the hands of fewer and fewer people. This happens because inflation hurts the lower incomes but actually enriches the higher incomes.

Commodities and energy stocks

Generally speaking, stocks that benefit from inflation are those with more exposure to commodity prices, such as energy companies or producers of heavy industry materials.

Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.

Economic factors, such as inflation, have a direct impact on the real estate market. As with other goods and services, real estate prices may rise alongside inflation. This is due to the fact that real estate is commonly considered a safe and stable investment that can be used to combat the effects of inflation.

Gold is widely considered an inflationary hedge because its price in U.S. dollars is variable. For example, if the dollar loses value from the effects of inflation, gold tends to become more expensive.

What stocks are not affected by inflation? ›

How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.) saved up for emergencies, such as unexpected medical bills or immediate home or car repairs. The guidelines fluctuate depending on each individual's circ*mstance.

Keep Cash to a Minimum

Danielle Miura, CFP, the founder and owner of Spark Financials, suggested, “You should keep enough money on hand to get you a couple of gallons of gas, pay for a delivery tip, or to help in unfortunate events,” or around $100-$200 at a time.

Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.

Low-income households most stressed by inflation

Prior research suggests that inflation hits low-income households hardest for several reasons. They spend more of their income on necessities such as food, gas and rent—categories with greater-than-average inflation rates—leaving few ways to reduce spending .

Debt does not adjust with inflation, so, therefore, your debt becomes cheaper over time. With rising inflation making your money worth less, it could be less beneficial to pay down low-interest debt early when the option to invest could bring more advantages.

Losers – Savers

That's because their money has stayed the same, but everything has a higher price, so they can't buy as much. Retirees who have their money squirrelled away in low-risk, low-return funds are made poorer through inflation.

“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago.

The impact inflation has on the time value of money is that it decreases the value of a dollar over time.

Hoarding is commonly criticized for creating shortages of goods in the real economy. It is possible for hoarding to create a cycle of speculation, self-fulfilling prophecies, and inflation.

What stocks do well in recession? ›

Shifting funds from bonds to stocks, especially preferred shares, is one strategy. Real estate usually performs well in inflationary climates; REITs are the most feasible way to invest. Adding global stocks or bonds to your portfolio also hedges your portfolio against domestic inflationary cycles.

DCB bank is now providing savings accounts with the highest interest rate of 8%, and FDs with the highest interest rate, 8%, for regular customers and 8.50% for senior citizens. DCB Bank has revised savings accounts and fixed deposit interest rates for deposits below Rs 2 crore.

The most common asset classes for protection against inflation include gold, commodities, a balanced and diversified portfolio with a 60/40 split between stocks and fixed income, real estate investment trusts (REITs), rental income from real estate, the S&P 500, and TIPS.

Prices are currently coming down in some markets, and the national median price was ever-so-slightly lower in February 2023 than it was in 2022, but experts do not expect dramatic drops. In many areas where prices are falling, the declines have not significantly improved affordability.

To save on your grocery bill, try to plan a few meat-free meals per week. Instead of fixing chicken or beef, make a big salad a few nights per week, or dishes with rice and beans or tuna fish. These lower-cost alternatives to traditional meats offer healthy protein without breaking the bank.

An imbalance in supply and demand. Inflation tends to increase when consumer demand for goods and services increases when supplies are limited at desirable price levels. The disruption in supplies or supply shocks can trigger inflation. For instance, global energy prices jumped following Russia's invasion of Ukraine.

Should I pay down debt during inflation? ›

Holding debt during a period of inflation isn't necessarily a bad thing. Economic theory dictates that borrowers benefit when inflation rises, because the money they're repaying to lenders today is worth less than when it was borrowed.

Inflation severely affects retirees by reducing their purchasing power and increasing lifestyle costs paid by distributions from investment portfolios. When inflation is high, consumers lose a large portion of their purchasing power, which makes a huge difference in their fixed income sources.

Inflation can negatively affect your debt because it often is accompanied by a rise in interest rates. With fluctuating rates, credit cards and other debt are likely to become more expensive as federal interest rates increase.

Within fixed income, longer maturity bonds have tended to perform very poorly in inflationary times as they are impacted by both the erosion of purchasing power and rising yields, which drive the value of bonds lower. Meanwhile, equities have done well during inflationary periods, provided there isn't an extreme shock.

A stock fund, either an ETF or a mutual fund, is a great way to invest during a recession. A fund tends to be less volatile than a portfolio of a few stocks, and investors are wagering less on any single stock than they are on the economy's return and a rise in market sentiment.

In addition to Tractor Supply Company (NASDAQ:TSCO), companies like Tesla, Inc. (NASDAQ:TSLA), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG) are also among the stocks affected the most by inflation.

High inflation has historically correlated with lower returns on equities. Value stocks tends to perform better than growth stocks in high inflation periods, and growth stocks tend to perform better during low inflation.

Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

You should save more during times of high inflation. When inflation is high, your money won't go as far. Spending less can help offset higher prices.

Is inflation good if you have investments? ›

Rising inflation erodes the purchasing power of a bond's future (fixed) coupon income, reducing the present value of its future fixed cash flows. Accelerating inflation is even more detrimental to longer-term bonds, given the cumulative impact of lower purchasing power for cash flows received far in the future.

When the prices for goods and services are rapidly rising, holding cash in your portfolio becomes less attractive. The prospect of prolonged inflation “argues against having too much in cash,” Christine Benz, director of personal finance and retirement planning at Morningstar, recently told The New York Times.

For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.

In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.

Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics. Discount stores often do incredibly well during recessions because their staple products are cheaper.