10 Investing Tips for an Inflationary Market

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Americans have enjoyed the benefits of low inflation for years, but there’s no question that it’s starting to rear its head. In its most recent report, the U.S. Bureau of Labor Statistics recorded a whopping 5.4% year-over-year change in the Consumer Price Index (CPI), one of the most widely followed inflation indicators.

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Fed Chairman Jerome Powell has expressed his belief that this most recent bout of inflation is merely transitory, and that it will get sorted out as the supply chain recovers by the end of the year. Yet, even if Powell is correct and the inflation rate increases only moderately, it seems likely that inflation will be higher going forward. If you’re looking to defend your portfolio against the effects of rising inflation, here are some investments that might offer some protection.

Last updated: July 21, 2021



The very name of Treasury Inflation-Protected Securities indicates the defensive nature of TIPS in an inflationary environment. These securities are issued by the U.S. government and carry the “full faith and credit” of that institution, making them among the safest investments in the world. The principal value of TIPS increases along with the inflation rate, ensuring that the dollars you invest don’t depreciate due to rising inflation. As interest payments are based on the principal amount, as inflation rises, so too does your income.

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Gold has long been viewed as a “store of value” in troubled times because it is a hard asset. Unlike financial assets like the U.S. dollar, which by definition lose value when interest rates and inflation rise, gold is a tangible asset that has intrinsic value. As investors sell financial assets when interest rates and inflation rise, some of the money goes into gold, further propping up its price. If inflation were to spike dramatically, gold might go up even more rapidly as nervous investors jump into the rare and precious metal.

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Real Estate

Like gold, real estate is a physical, tangible asset that tends to be more popular when financial assets are losing their value. During inflationary periods, housing prices and rents often rise, increasing the value of real estate. Buying individual homes or rental properties can be a tricky thing, as the mantra “location, location, location” is an absolute truth when it comes to real estate. To avoid having to make these types of decisions — and to make your investments much more liquid — consider buying a real estate investment trust.

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Dividend Aristocrats

In a sharply rising inflationary environment, stocks can often take a beating. However, in a more benign inflationary environment, in which the CPI is only rising slightly, stocks that consistently pay rising dividends can be a good option. So-called “dividend aristocrats” are stocks that have paid a rising dividend for at least 25 years in a row. Companies with this type of predictable dividend stream are typically mature companies with reliably predictable revenue. In other words, these companies thrive regardless of the competitive or economic environment. Their steadily rising dividend stream also acts as a buffer against rising inflation by paying you an ever-increasing rate of return on your initial investment.

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Commodities is a catch-all term for raw materials that often go into the production of consumer goods, like copper, hogs and oil. As the prices of these materials go up, so too do the prices of the final goods that consumers buy. For example, when the cost of oil rises, so too does the price of gasoline; when the price of copper jumps, many industrial companies pass those costs on to consumers. The CPI includes the cost of many commodities, so if inflation is rising, so too is the cost of many commodities. One good way to combat inflation is to own the commodities that actually comprise a portion of the CPI.

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Short-Term CDs

A certificate of deposit in and of itself doesn’t provide much defense against inflation. However, if you own a short-term CD during a period in which inflation and interest rates are rising, you can still benefit. Every time your CD matures, it will be rolled over into a similar CD at current rates. In a rising-rate environment, this means that every time your CD matures, you’ll be invested in a new CD that pays a higher interest rate. Those higher rates that you earn can help defend against the higher costs you’re paying due to inflation.

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Rare Coins

Rare coins fall into the category of collectibles, and that’s an asset class that tends to do fairly well during inflationary periods. Like real estate or other investment options, when it comes to rare coins, it’s really the choice pieces that perform the best. Common coins, or those in poor condition, are usually only worth the intrinsic value of their metal, which can indeed rise during inflationary times. However, choice specimens that are very rare or in top condition can outperform dramatically when inflation runs rampant.

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Quality art pieces tend to do quite well during inflationary periods, typically outperforming the rise in the CPI. Art is a unique investment in that not all pieces do well, and the value of art as a whole doesn’t correlate particularly well with other asset classes. This makes artwork both an opportunity and a risk. However, it should be noted that over the past 25 years, contemporary art has outperformed even the S&P 500 index, according to the Citi Global Art Market chart. Generally, art outperforms the CPI because, like gold and certain other asset classes, it is a physical, tangible asset that investors cling to over intangible assets like currencies.

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Defensive Stocks

Some companies sell products that people tend to buy regardless of whether there’s inflation, a recession or any other type of calamity because they are required for daily life. Even in the worst of times, people will still buy toilet paper and food, for example. These types of companies are known as defensive because they are resilient even in the face of hard times. Defensive stocks can be a good buy during inflationary periods for this very reason. Most defensive companies also pay a good dividend and have been around for decades.

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Utilities might not be the most exciting investments in the world, but when inflation rises, they have something built-in that not many companies do: pricing power. As utilities are heavily regulated, they’re generally granted the authority to increase their prices to the extent that their costs rise. Although a lot of factors go into the price of energy charged by a utility, if it costs your electric utility more money to produce electricity for your neighborhood, it’s usually permitted to pass that expense on to you in your next power bill. Utility stocks are also defensive in this type of market environment because they typically pay high dividends, which are in demand when the cost of living is going up.

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