With inflation on the rise, investors are looking for the best way to preserve the value of their portfolios in the coming periods. Although inflation is a natural occurrence in the economy, rapidly rising inflation causes uncertainty in the markets and can lead to large price swings and overall volatility. 

Through inflation hedging strategies, investors can discover the best financial instruments to make up for potential losses due to inflation. 

The good news is that there’s always an opportunity to make money no matter the market conditions, investors just need to be more strategic with their trades and have the right tools and resources at hand to do so. 

If you’re hoping to discover the best hedge against inflation, you’re in luck – that’s exactly what we’ll cover in this in-depth guide. You’ll also learn about the best stocks to hedge against inflation. All of this becomes simple and streamlined with the best stock picker – VectorVest. Here’s a quick over of the best way to hedge against inflation:

  1. Real Estate
  2. TIPS
  3. Cash
  4. Gold
  5. Commodities
  6. Aggregate Bond Index
  7. Stocks

Learn more about the best way to hedge against inflation below including how our software can streamline your decision-making process and empower you to protect your capital regardless of market conditions.

Overview of Inflation Hedging

Before we start discussing what the best hedge against inflation is, let’s take a look at what an inflation hedge is. We can begin by defining inflation, which is when the general price level of goods and services increases so the buying power of a given currency declines. 

A hedge against inflation, then, is the risk management strategy utilized by investors to offset the negative effects of inflation on their portfolios. 

While implementing any sort of hedging strategy is a good idea, there are some investments that offer more advantages than others – which is why we’re going to discuss the best way to hedge against inflation. 

Why You Need the Best Investments To Hedge Against Inflation

As an investor, you need a solid grasp of the market forces at play and how they impact your portfolio. Both macro and local trends have the potential to derail your investments. So, it’s important to be prepared by utilizing strategies that can help to preserve their value.

At this point in time, there doesn’t appear to be a clear end in sight to rising inflation in the United States. And while there haven’t been many periods of prolonged inflation in the history of our country, the short-term can still set your portfolio back months – or even years.

Plus, it’s been shown that years with higher rates of inflation saw meaningful stock market gains as well. However, there are also instances where the major indices suffered during these times. 

So, investors can’t rely on the fact that their portfolios will soar during inflationary periods – you must stay ahead of the curve by implementing some means of an inflation hedging strategy, especially if recession fears continue to linger. 

Above all, investors need to discover the best investments to hedge against inflation because it’s how they can preserve the value of their assets over the long term. 

Then, once market conditions have turned favorable again, they can start to compound on previous returns rather than having to climb out of a hole and recoup their losses. With all of this said, what are the best hedges against inflation that are available to investors today? 

What Is The Best Hedge Against Inflation? Top Investments To Consider Adding To Your Risk Management Strategy

Investors looking to implement a risk management strategy in the period ahead have a variety of options when it comes to the best ways to hedge against inflation. Continue reading as we list out what we deem to be the top approaches – starting with real estate. 

Real Estate

Real estate can be a great bet for investors during periods of rising inflation. Given that real estate has an intrinsic value and that property values tend to increase as inflation rises, having real estate exposure during these times can be very valuable for investors. 

Plus, there are regular dividends to collect through rent payments, and the demand for housing does not tend to be impacted by macroeconomic conditions. So, as inflation rises and fears of a recession continue to loom, investors can bolster their portfolios by increasing their real estate holdings. 

Even owning your own house can be a hedge against inflation if you’re currently renting. You gain a heap of tax benefits by paying your mortgage and you’re building equity, making this one of the best ways to invest for early retirement. The fact that it also happens to be the best hedge against inflation is a bonus!

An easy and accessible way to invest in real estate without buying properties is to purchase REITs or real estate ETFs on the stock market. These securities are more liquid than physical real estate, so investors can quickly buy and sell them as they wish to execute their inflation-hedging strategies. 

TIPS

Another tool investors have to defend themselves against the negative effects of inflation is to purchase TIPS. While these can’t be purchased on the stock market, investors have long depended on TIPS as anti-inflationary investment vehicles. 

TIPS, or Treasury inflation-protected securities, are backed by the United States government and designed to increase in value as the inflation rate rises. 

So, it’s clear how these securities can be valuable to investors to preserve their assets during inflationary periods. Even still, some investors choose to omit TIPS from their inflation hedging strategies because the long maturity dates keep their funds locked up for a significant amount of time. 

So, given that many inflation hedges are implemented as short-term strategies, the structure of TIPS may not be the best bet for investors, especially where liquidity is concerned. 

Cash

One way that investors choose to preserve their capital during inflationary periods is to hold on to cash. Rather than actively participating in the markets, they decide that sitting on the sidelines is a better course of action for them. 

Most of the time, this means that investors close out their holdings, preferably near a high, and wait for a market correction when there’s a more favorable entry point. This type of inflation hedging strategy can be a safe bet for investors who don’t have access to valuable tools and resources and would rather avoid incurring losses. 

But, they don’t have the exposure to other securities during this time that can provide them with profitable returns, either. If you’re risk-averse, this is probably the best hedge against inflation for you.

Gold

Gold has long been considered a stalwart hedge against inflation, preserving value as a timeless asset unaffected by currency devaluation. Here are several ways to incorporate gold into your investment portfolio:

  • Physical Gold: Investing in physical gold, such as coins, bars, and bullion, is the most direct way to own this precious metal. Physical gold is highly valued for its material worth and as a tangible asset that you can hold outside of the traditional financial systems, providing a sense of security during times of economic uncertainty.
  • Gold ETFs: For those who prefer not to hold physical gold, Gold Exchange-Traded Funds (ETFs) offer a convenient way to invest in gold through the stock market. Gold ETFs track the price of gold and reflect its performance. They provide liquidity and ease of trading that physical gold does not, allowing investors to buy and sell shares just like stocks.
  • Gold IRAs: A Gold Individual Retirement Account (IRA) allows investors to hold gold as part of their retirement savings with the tax benefits of an IRA. These accounts can include physical gold or gold-related assets like some ETFs. Gold IRAs can be an excellent way to diversify retirement portfolios, protecting against inflation over the long term.

While you can also invest in gold mining stocks, this is less an investment in gold and more an investment in an individual company’s ability to run an effective, efficient business. 

You can still consider building a stock portfolio with these stocks but you’ll need to be more careful and diligent in picking stocks. Don’t stress – we’ll show you how to make this easy with the best investment apps for beginners shortly.

Commodities

Commodities such as oil, natural gas, agricultural products, and metals offer another robust hedge against inflation. These raw materials are fundamental to the economy, and their prices often rise when inflation increases, primarily due to the higher costs of goods and services. 

Investing in commodities can be executed through futures contracts, commodity-specific ETFs, or stocks of companies involved in commodity production and exploration. 

As inflation drives up prices, the value of these commodities typically increases, offering a hedge that not only protects but can potentially profit from inflationary pressures.

Aggregate Bond Index

Investing in an aggregate bond index is another one of the best hedges against inflation. These indices typically include a mix of government, municipal, and corporate bonds, providing exposure across different sectors and credit qualities.

An aggregate bond index reduces risk by diversifying holdings across various types of bonds. This helps stabilize returns as different bond categories react differently to economic changes, offering a protective buffer against market volatility.

Bonds within these indices also generally pay regular interest, which can provide a steady income stream to offset inflationary forces, helping you maintain purchasing power.

Aggregate bond indices are accessible through various financial instruments, including mutual funds and ETFs. These funds are managed by professionals who adjust holdings based on changing economic conditions and interest rates, which can be advantageous during inflationary periods.

Stocks

Many experts agree that stocks are the best hedge against inflation. Not only has this been proven true historically during periods of high inflation, but it’s how investors can outpace the rate of inflation during normal conditions. It’s worth taking a look at how the stock market works during inflation.

For example, until now, the period with the highest rates of inflation in recent times was in 1979-80. Coming in at 11.3% and 13.6%, respectively, inflation was roaring through the country. However, the stock market clocked in very impressive returns during these years, with the S&P 500 gaining 18.5% in 1979 and 31.7% in 1980!

There are many other instances where the overall stock market saw better returns than the inflation rate, and a few where they didn’t, but stocks continue to reign supreme among investors when it comes to the best ways to hedge against inflation. 

With stocks, investors can utilize a number of different strategies including shorting stocks, shorting ETFs, and implementing value investing principles. 

So taking this into account, you may be wondering what are the best stocks to hedge against inflation with? Keep reading as we discuss the stocks you should look out for when executing your inflation-hedging strategy. 

What Are The Best Stocks to Hedge Against Inflation With?

If you want to stick with the stock market to hedge against inflation, you’ll be happy to know there are a number of ways you can make money with stocks as inflation rises. 

Keep in mind, not all stocks will perform well during inflationary periods, so you’ll need to be strategic about which trades you initiate to stay profitable. 

Learning how to invest during a recession can be helpful, though there are specific aspects of inflation that call for a distinct strategy. 

Following the S&P 500 Index

So when it comes to the best stocks to hedge against inflation with, many experts will point out that the S&P 500 has generally performed well during inflationary periods. 

Thus, keeping a diversified holding of the stock market through one of the major indices can help investors stay profitable during these periods. We consider these among the best stocks to buy for beginners.

However, this stock investment strategy means you may end up having losers within your portfolio that hold your performance back. We recommend a more active approach to investing, which we’ll discuss shortly. 

Taking Your Trades International

Additionally, international stocks can be valuable assets for American investors while inflation runs rampant in the U.S. Major markets like Italy, Australia, and South Korea tend to be independent of the market forces at play domestically and can be a good haven for investors looking to preserve capital during these periods. 

Using VectorVest as Part of Your Inflating Hedging Strategy

Now – how do you find these stocks to invest in? Of course, you can rely on technical analysis – keeping track of the best indicators will help you uncover opportunities. 

You can also follow company news on free stock analysis websites to identify new opportunities. However, there is a better way to invest – allow us to introduce you to VectorVest, the best stock analysis app!

To discover individual stocks and other opportunities in the stock market despite unfavorable overall market conditions, you need the help of a stock forecast website. 

With VectorVest, not only will you gain clear advice on what stocks to buy, when to buy them, and when to sell them – but you’ll also be able to utilize our pre-configured searches that pull up winning opportunities on autopilot! 

Not sure of your next move? Just take a look at our hottest stock picks on any given day and see which picks align with your strategy. Whether you’re looking for falling stocks to buy or current undervalued stocks, high volatility stocks, aggressive growth stocks, or in the case of inflation hedging, the best blue chip dividend stocks – we’ve got picks for you.

Our software helps you gain confidence and eliminate the guesswork as an investor. No need to spend hours trying to make sense of charts and stock indicators. Instead, invest the modern way using our proprietary stock-rating system that simplifies all technical indicators into three metrics: value, safety, and timing. 

Pick the stock with the highest VST Rating and win more trades – it’s that easy. Check it out today with a free stock analysis tool.

How To Get The Most Out Of Your Hedging Strategy

In addition to learning what the best ways to hedge against inflation are, there are some other tips to keep in mind as you move forward with any of the abovementioned strategies. Let’s take a look at some of the ways you can best execute a profitable inflation hedging strategy. 

Be Realistic With Your Goals

When executing an inflation hedging strategy, the goal may not be to capture maximum gains. Instead, you may be trying to avoid major losses caused by inflation so you don’t have to dig out of a hole once there’s been a market correction. So, keep your expectations reasonable and realize that there are some limits to how much your inflation strategy can accomplish. 

In the end, you’ll be happy that you took the steps to protect the value of your assets against inflation, and don’t have to make up for major losses once inflation rates have abated–even if you didn’t experience major gains during this time. 

Maintain Diversification

Additionally, investors should be aware that executing a short-term inflation hedging strategy could impact the overall diversification of their portfolios. So, they should make sure that they’re maintaining a diversified portfolio that aligns with their long-term goals. This is important because they’ll want to avoid outsized exposure to certain areas that could be potentially risky. 

Be Aware of the Tax Implications

On the same note, an inflation hedging strategy may call for investors to enter and exit a series of short-term positions to best play the markets and execute profitable trades. While this may be beneficial for hedging against inflation, it could make investors liable to capital gains taxes on profitable trades. So, investors need to account for this when pricing out these strategies. 

Final Thoughts On The Best Ways To Hedge Against Inflation

So, now having a clear understanding of what the best investments to hedge against inflation are, you can be better prepared to deal with rising inflation and keep it from being detrimental to your portfolio. 

Although inflation is a natural occurrence in the economy, there are still ways investors can preserve their capital during these periods and execute profitable trades. If you want to learn more, you can take a look at our article on how to hedge against inflation.

Investors at any level can benefit from investing in quality stock forecasting software to help make quick and informed decisions and accurately time the markets. 

You don’t have to wait for a market correction to make money in the stock market; rather, with the proper tools at hand, like VectorVest, you can have the clarity to make profitable trades no matter the market conditions. 

Learn more about blue chip investing, how to buy the dip, investing after retirement, fundamental vs technical analysis, the best stock research sites, stock trading systems, how to analyze stocks, dividend vs growth stocks, or swing trading strategies in our blog.

Otherwise, it’s time you got set up with the best stock apps for iPhone or the best stock apps Android at VectorVest today. Whether you’re using individual stocks or funds as part of your hedging strategy, you can streamline your decision-making through our intuitive insights. Trade smarter with VectorVest today!