What Is the Best Hedge Against Inflation? 5 Investments to Consider

Best Hedge Against Inflation - What Is the Best Hedge Against Inflation? 5 Investments to Consider

Source: Sauko Andrei / Shutterstock

Inflation is soaring and commodity prices are increasing. Consumers are feeling the pinch as the cost of living continues to rise. So, keep your guard up. Inflation is a sneaky thief that can steal hard-earned money from your wallet.

The Consumer Price Index (CPI) measures the average change in prices of consumer goods and services purchased by households. It has risen 8.6% in May — an increase that has been even greater than economists predicted. Incidentally, this is the highest increase since 1981. Three factors have contributed to this: higher oil prices, increased commodity prices, and low unemployment, which has led to increased wages.

Inflation is not a new phenomenon; however. It has been increasing at an alarming rate due to the abovementioned factors.

The best hedge against inflation is to have a diversified portfolio of assets, including stocks, bonds, commodities, and real estate. In this article, we will touch upon these assets so that you can maximize your returns while minimizing risk.

Best Hedge Against Inflation: Gold

An image of multiple gold bars
Source: Shutterstock

Gold is one of the most traded commodities in the world. Its inherent properties make it a suitable investment for people who want to hedge their investments against inflation or want to invest with other assets.

Gold is not affected by changes in monetary policy, interest rates, or other economic factors that may cause inflation. The asset does not lose value when governments print more money to pay off debts or fund wars.

In times of economic turmoil, gold is often seen as a haven because its value doesn’t change with the economy. Its supply is limited compared to other assets, with more potential for growth, like stocks or real estate.

In addition, there is another way you can invest in this asset; through gold stocks.

Gold companies extract the raw materials from the earth and refine them into pure gold or into various products such as coins, bars, jewelry, ornaments, and electronics. Gold mining companies can be public or private entities. Some of these entities are small-scale, while others are large-scale gold mining companies that have thousands of employees.

Real Estate Investment Trusts (REITs)

Real estate investment trust REIT on an office desk.
Source: Vitalii Vodolazskyi / Shutterstock

REITs are investment vehicles that own income-producing real estate. They have been around since the 1960s, but they were not considered a mainstream investment until the 1980s when they became more popular among individual investors.

REITs are an alternative to investing in real estate directly. Investors could invest in a REIT and get exposure to income-producing properties without worrying about the company’s day-to-day operations.

REITs also allow investors to diversify their portfolios by investing in different property types and sectors, such as retail, office, industrial, etc.

Hence, there are many types of REITs, each with its niche market. Some specialize in commercial real estate, while others invest in residential properties or industrial buildings. If you believe in one sector more, like data centers, for instance, then it’s worth investing accordingly.

It’s easy to see why there is so much interest in REITs. They give 90% of their profits to unit holders who can take advantage of them as long-term tax shelters. In a market where it can be challenging to find a consistent dividend yield, REITs are considered a staple of many investment portfolios.

Best Hedge Against Inflation: Investing Overseas

a digital representation of the world in the foreground and a table with a notepad, mobile phone and coffee cup in the background
Source: Shutterstock

Investing in international companies can be a wise choice. It can diversify your portfolio and help you stay ahead of the curve. You can invest in foreign companies in many ways, most commonly by purchasing American Depositary Receipts (ADRs).

ADRs allow companies with shares listed in other countries to trade on U.S. exchanges and garner greater visibility for international and non-U.S.-based companies.

Investing in overseas companies is a complex and daunting task. One of the most important factors is the country’s legal system. A country’s legal system can significantly impact how well an investment will do and how long it will take for it to start making money. Investors need to understand the laws and regulations of the country they invest in before committing their money.

In addition, there are other aspects that investors should consider, such as cultural differences, government regulations, and corruption rates.

Investors should also be aware of how much risk they want to take with their investments. There are several companies in the world, such as Canadian Natural Resources (NYSE:CNQ), for example, which are very safe and have a regulatory framework that is comparable to America. But then you will have companies like the Chinese multinational technology conglomerate Tencent Holdings (OTCMKTS:TCEHY). It is a proven performer but operates in China, which has a very complex regulatory environment.

Hence, do your homework when investing overseas.

ETFs and Mutual Funds

ETF Investment index funds concept with letter wooden blocks and lots of different currencies, ETFs to buy
Source: Eviart / Shutterstock.com

Exchange-traded funds (ETFs) and mutual funds are two types of investments that provide stable returns to their investors. These investments have a low-risk approach and are therefore, long-term investments.

ETFs are an investment vehicle that tracks a specific index, asset class, or baskets of assets like stocks, bonds, commodities, and currencies. There are several reasons ETFs are popular among investors.

First, ETFs have low fees and low trading costs. Second, ETFs are traded on various exchanges and platforms. This makes it easier for investors to access them. Third, because of their low fees and low trading costs, ETFs provide an opportunity for high returns on investment.

A mutual fund is an investment company that pools investors’ money to purchase securities, such as stocks or bonds, to diversify the portfolio risk and provide regular income for its shareholders.

Mutual funds are a popular investment option because they offer various investment options, low fees, and the possibility to diversify your portfolio. They have been around for over 100 years as an alternative to investing in individual stocks or bonds.

Mutual funds allow investors to pool their money with others and invest it in various securities, including stocks, bonds, and real estate. This allows them to get higher returns than if they were investing individually.

Best Hedge Against Inflation: Long-Term Stocks

A close-up shot of a hand stacking coins near the outline of a clock. represents long-term stocks to investing for the next decade
Source: Shutterstock

Long-term stocks, stable investments, and diversification are the three pillars of financial planning.

Long-term stocks are a safe investment because they are less volatile and are at low risk of losing value. Investors can hold stable investments for long periods and expect them to grow in value. Diversifying your portfolio with both stocks and stable investments is important for achieving your financial goals.

One of the reasons why long-term stocks are preferred is because they offer a level of stability. They have low volatility and less risk compared to other types of investments.

Additionally, diversification is one way to reduce the risk in an investment portfolio. It ensures that each investment does not have too much impact on your overall portfolio value.

These are great for your portfolio, so it really depends on what you’re looking for. Some offer higher yields, some have extensive product portfolios, and some have a proven track record.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


Article printed from InvestorPlace Media, https://investorplace.com/2022/06/what-is-the-best-hedge-against-inflation-5-investments-to-consider/.

©2022 InvestorPlace Media, LLC