Inflation-Proof Investments: 6 Ways to Protect Your Portfolio in 2022

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The United States just continues to break inflation records throughout 2022. On May 11, the Bureau of Labor & Statistics (BLS) reported that the Consumer Price Index (CPI) had risen by 8.6% over the previous 12 months. That marked a new 40-year high.

Inflation presents special challenges for investors. Even if your investments are growing in value, inflation is still reducing that value on the back end. The only way to deal with it successfully is to be sure that your money is in investments that are likely to benefit from inflation while avoiding those that tend to be especially hard hit.

So how do you find investments that benefit from inflation, instead of losing their value? Here are six inflation-proof investments to consider:

Inflation-Proof Investments Worth Considering

The rapid recovery to pre-coronavirus-crash levels of economic activity — in combination with the trillions of dollars of government stimulation — created the perfect storm of accelerating inflation.

There are no guarantees when it comes to investing for inflation. At best, certain investments may be inflation-safe, but returns can never be guaranteed. Still, any one or a combination of the following asset classes may prove to be a winning strategy.

1. Keep Cash in Money Market Funds or TIPS

If you suspect that inflation will be a factor in the future, it's best to keep any cash-type investments in money market funds or a high-interest cash account like Unifimoney.

While it’s true that money market funds currently pay next to nothing, they're the cash investment of choice during periods of rising inflation.

Here are two reasons why this is true:

  1. Because the rates they pay fluctuate continuously with interest rates, and they automatically adjust upwards as interest rates rise. There's no need to chase higher-yielding cash-type investments.
  2. Since money market interest rates rise with the general market, you won't have to face the loss of market value that plagues fixed-rate investments during times of inflation.

When inflation hits, money market funds are interest-bearing investments, and that’s where you need to have your cash parked.

Still another alternative is Treasury Inflation-Protected Securities, or TIPS, issued by the U.S. Treasury. You can buy these online through Treasury Direct in denominations as small as $100.

How to Buy TIPS

  1. The Treasury Direct website — Go to the Treasury Direct website to find out when they are being sold. The Treasury sells them at auction only a few times a year.
  2. Through a broker — Go to a stock broker and purchase the desired fund.
  3. ETFs —If you don't want to buy TIPS directly, you can also invest in them through an exchange-traded fund or other index funds.

TIPS are actually quite complicated. Here are the basics of TIPS:

  • They can be purchased in multiples of $100.
  • Available terms are 5-, 10- and 30-years, which means they're longer-term securities.
  • TIPs pay regular interest and make annual adjustments — up or down — to the principal, based on the direction of the Consumer Price Index (CPI).
  • If the CPI drops, your principal will be reduced, but TIPs held to maturity will pay at least their face value.
  • Both interest and any increase in the principal are taxable in the year paid.
  • Neither interest nor principal increases are taxable at the state and local level.
  • Unlike the other asset classes on this list, TIPs aren't likely to produce big gains in an inflationary environment. But they provide some inflation-adjusted stability to your portfolio.

The bonds are available in terms of five, 10, and 30 years, and pay interest twice annually. And each year the value is adjusted based on the Consumer Price Index (CPI). This gives you regular interest income, plus an annual adjustment for inflation to your principal value.

2. Inflation Is Usually Kind to Real Estate

Over the long term, real estate is also usually an excellent investment response to inflation. Real estate is actually the ultimate hard asset and often sees its greatest price appreciation during periods of high inflation. This is especially true because, as rents rise, people become increasingly interested in owning as a way of getting the tax benefits that help offset the general level of inflation.

You can invest directly in individual properties using a platform like Roofstock. But you can also invest in REITs like the Equity Residential (EQR) trust. This trust has more than 300 large apartment complexes, primarily in high-cost markets like New York, Boston, San Francisco, Southern California, Washington, D.C., and Seattle.

If you want crowdfunding platforms that offer REITs, Streitwise is our pick. This platform gives the opportunity for almost anyone to invest in private real estate deals with a minimum investment of just $5,000.

However you handle it, real estate should have a place in your portfolio if you anticipate rising inflation.

3. 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.

The problem with long-term fixed-income investments is that when interest rates rise, the value of the underlying security falls as investors flee the security in favor of higher-yielding alternatives.

That 30-year bond that’s paying 3% could decline in value by as much as 40%, should interest rates on newly issued 30-year bonds rise to 5%.

Long-term fixed-income investments are excellent when inflation and interest rates are falling. But if you believe that inflation is about to take off, you’d be better off moving your money out of long-term fixed-income investments and into shorter-term alternatives, particularly money market funds.

4. Emphasize Growth in Equity Investments

Many investors try to balance out their equity portfolios by investing in high dividend-paying stocks, or in growth and income funds, and this can work especially well during periods of price stability. But when inflation accelerates, it can hurt your investment returns.

This is at least in part because high dividend-paying stocks are negatively affected by rising inflation in much the same way long-term bonds are.

The better alternative is to invest primarily in growth-type stocks and funds. You should also emphasize sectors that are likely to benefit from inflation. These can include:

  • Energy
  • Food
  • Healthcare
  • Building materials
  • Technology

Since all are likely to rise in price with inflation, they're likely to perform better than other equity sectors.

You can invest in these sectors through an ETF fund or you can buy specific stocks that have growth potential. For example, you can invest in energy stocks through the S&P Oil & Gas Exploration & Production ETF (XOP) or Vanguard's Health Care Index Fund (VHT). Once you have identified what you want to buy, you can purchase it through a broker E*TRADE.

We recommended using these commission-free brokers to buy ETFs:

HighlightsAlly InvestTD AmeritradePublic
Min. Investment$0$0$0
Stock Trades$0/trade$0/trade$0/trade
Options Trades$0.65/contract$0.65/contractN/A
Crypto Trades
Mutual Funds
Virtual Trading

5. Commodities Tend to Shine During Periods of Inflation

While there isn’t an exact correlation between price levels and commodities, certain hard assets have traditionally been favored by inflation. Precious metals, particularly gold and silver, come to mind immediately. You can hold precious metals in a direct form, with coins or bullion bars, but you can also invest indirectly through ETFs that hold actual gold.

You can also invest in gold mining stocks, or in funds comprised of these stocks. However, these are stocks, and not the actual metal itself. They also tend to be extremely volatile, even during times when gold prices are rising.

A more predictable hold on the stock side will likely be energy stocks and funds. This is especially important since rising energy prices are often one of the primary drivers in inflationary environments.

If you want to invest in commodities, we recommend opening a brokerage account at one of our top-rated brokers. Once you have an account open, you can trade directly through most full-service brokerage firms via a futures fund, options, or an ETF.

6. Convert Adjustable-Rate Debt to Fixed-Rate

Technically speaking, this is not actually an investment move, but it could be one of the most profitable strategies you can make in response to rising inflation.

Periods of low or declining inflation favor adjustable rates over fixed rates when you borrow money. But the dynamic reverses when inflation rises. Higher inflation results in higher interest rates, which means that as inflation accelerates, your adjustable rates will continue to rise — even to potentially unsustainable levels.

If you believe inflation is coming, you should begin rolling your adjustable-rate debt over to fixed rates. This should include credit cards, home equity lines of credit, and especially your first mortgage if it happens to be an ARM.

Talk to your loan provider to see what options are available. It's a good idea to also check the paperwork on your loan to see when your rates will increase so you can plan. If you refinance your mortgage, try to lower the repayment period and avoid resetting your 30-year mortgage. You will end up paying a lot less in interest, even if your monthly payments remain the same or are higher.

The Bottom Line

As the Federal Reserve eases its monetary policy and begins to raise interest rates, the hope is that the inflation rate will eventually settle and begin to decrease.

But that will take time. For now, repositioning is important. Adding just a few investments that tend to perform well in inflationary environments could help your portfolio survive, and perhaps even thrive, during this period of runaway inflation.

Kevin Mercadante

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids.

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