5 Time-Tested Ways of Hedging Inflation for Investors


With the US at its highest level of inflation in nearly 40 years, perhaps the only good news is that there are time-tested methods investors have used in the past for hedging against inflation. Here are five ways.

Inflation hit 6.8% in November, marking a 39-year high, the steepest price climb since June 1982, according to the latest report by the Bureau of Labor Statistics. Investors should seek ways of generating returns that match or exceed inflation to offset the shrinking value of the US dollar.

  1. The golden bet against inflation

In times of inflation, investors have relied on gold, which tends to rise in price along with inflation, according to US News.

However, gold is not without its drawbacks. Gold does not pay any dividends, nor do many gold-related stocks, such as mining companies.

  1. Real estate

Housing prices are skyrocketing. It’s a seller’s market, and those owning real estate currently have an opportunity to cash in. Now, it’s a time of high demand and low supply. Goldman Sachs has predicted that the housing shortage may last longer than any other of the current factors affecting the US economy, potentially even leading to a multi-year boom for the homebuilding industry, the Motley Fool reports.

Speed counts, as the Federal Reserve is expected to raise interest rates in 2022 to deal with inflation, which could slow down buying if and once that occurs.

  1. Consider investing in energy stocks

As is already evident, the price of energy increases with inflation. Prices rise to keep profit margins the same. This can make energy socks a good investment.

Year-over-year, energy prices saw an increase of 29.3%, with gasoline skyrocketing 49.6%, CNBC reported. Natural gas, which nearly half of all US homes use as a heat source, is 32% more expensive than a year ago, on average, according to the US Energy Information Agency. However, it’s much higher in some regions, including an increase of 45% in the Midwest. Electricity, which is used for heat by 40% of US homes, is also up nearly 6% nationwide on average, CNN reports.

  1. Invest in health insurers and pharmaceutical companies

Some health and pharmaceutical companies are making record profits amid the pandemic. But that’s not the only reason. Health insurers and pharmaceuticals are often the biggest beneficiaries during times of inflation, US News reports, as this industry can also receive a boost from rising prices.

  1. Investments to be wary of

Stocks in companies related to providing consumer staples need to be watched carefully, taking note of whether these companies can pass costs onto consumers to keep pace with their higher production costs.

Watch out for investing in tech companies carrying debt. Another problem with tech stocks is whether companies can raise their prices without hurting demand for their products.

Financial stocks, such as banking institutions, can be tricky. While higher rates increase profit margins, if inflation rises too rapidly, it can stifle economic activity and become harmful for financial stocks.