When investors hear the word “inflation,” they start making moves with their portfolios. If you’re concerned about the potential of inflation to devalue your portfolio, then you might be wondering what kind of investments you could pivot to in order to preserve the value of your assets. Here are a few investments that savvy traders have made during times of inflation to guard their money.
While stocks in companies don’t tend to fare well during times of high inflation, commodities often thrive. Physical goods like metals, oil, orange juice, and natural gas have a unique relationship with inflation, and their price rising often indicates that currency is being devalued.
Investing in commodities isn’t common among amateur investors, though. This is because they are considered extremely volatile, and many financial advisors don’t encourage their clients to get into them without a good grasp on the unpredictable returns the market can make. However, for those who feel confident in their ability to pick winners in the commodity market, commodity-based exchange-traded funds can be a good hedge against inflation.
Precious metals are also a commodity, but they deserve special attention in any discussion of inflation hedges. Metals like gold, silver, and platinum have historically stayed valuable even as the value of government-backed currency has fallen. Typically, periods of uncertainty in fiat money lead to upticks in the value of precious metals as investors rush to protect their wealth.
Gold and other metals have some unique properties that make them stay valuable over time. One of these properties is that there is a finite amount of them on the planet: more gold can’t just be created. Fiat money, on the other hand, experiences inflation precisely because governments can always just issue more money.
A classic “hedge” position for a portfolio is a split of 60% stocks and 40% bonds. This kind of portfolio is considered a good short-term way to hedge your assets without needing to put in too much research or work on shifting your money around. If you’re concerned about potential short-term losses on the market, you could consider moving to this more conservative position to safeguard your money.
Analysts warn that this split isn’t ideal for a long-term investment strategy, though. When inflation cools, portfolios with a higher percentage of stocks can often see more returns. As always, your mileage may vary on these kinds of investments, and no one can perfectly predict the way the stock market will move.