Hedge Against Inflation—Investment Strategies

Author: Joseph Turek, CFP®, Product Solutions Partner

This year, American consumers are seeing higher prices for gas, groceries, and other goods and services as we experience the highest rate of inflation in over 40 years. Investors are likely worried about how inflation will impact their portfolio and how they can protect their money.

While inflation is a natural occurrence in the market economy, investors can plan for it by investing in asset classes that outperform the market during inflationary periods. Financial advisors may want to review portfolios for those investors who could benefit from adding some strategies in this inflationary environment. The following are some ideas that may be beneficial:

Domestic Stock

Stocks are a good long-term investment vehicle for hedging against inflation. Stocks offer the most upside potential in the long term. But not all stocks are created equal when it comes to hedging for inflation. Sectors that tend to perform better during times of inflation include healthcare, consumer staples, utilities, real estate and energy. Stocks can be more volatile than other investments in the short term, which is why they are considered a good long-term investment.

International Stocks

Clients may consider increasing international exposure as a strategy to hedge against domestic inflation. Other major economies in the world may be in different stages of the business cycle – for example expanding while another economy is contracting. Some international investments do not rise and fall in tandem with the U.S. stock market indices. Adding these types of international stocks can help hedge investors’ portfolios against domestic economic cycles.

Real Estate/REITs

Real estate investments typically do not move in lock step with stock investments, which contributes to diversification in an investment portfolio. Also, the value of real estate tends to keep up with inflation compared with many other investments. This allows investors in real estate to keep pace with the rise in inflation. Investors who are not interested in investing in actual properties can invest in the real estate market through Real Estate Investment Trusts (REITs) or mutual funds that invest in REITs, which both allow an investor to participate in the growth of the investment and delegate the day-to-day management to a manager.

TIPS (Treasury Inflation-Protected Securities)

Treasury Inflation-Protected Securities (TIPS) are government bonds that are indexed to inflation. When inflation rises, the value of the TIPS increases. When deflation occurs, the value of the TIPS falls. At maturity, investors are paid the original principal value, or the principal value adjusted for inflation, whichever is greater. TIPS are backed by the U.S. government, so they enjoy the high safety ratings of other government investments. TIPS bonds pay interest twice a year at an interest rate determined when issued and are issued in five, 10, and 30-year maturities. These can be purchased individually or in a mutual fund to reduce day-to-day management.

Floating Rate Debt (or Purchase Bank Loans)

Bank loans or floating-rate debt are generally a loan made to a company that has a lower credit rating than other companies. The interest payments made by floating rate debt varies based on short-term interest rates, meaning the payout rises in response to upticks in interest rates. Since interest rates often rise in times of high inflation, an investment in floating rate debt may be an investment consideration for investors concerned about rising inflation rates. Investors may also buy these through ETFs or mutual funds, which serve to diversity the investment.


Commodities are basic goods that are used in the economy. Some examples are metal, oil or crops. These investments often rise in value as inflation increases because the economic needs of the commodities increase. These investments do not move in tandem with other investments. Due to the features of these investments, they can benefit an investor in times of inflation. Like many other investments, individuals can invest directly in one commodity or can invest in a mutual fund or other investment vehicle of commodities.


Investors have several investment strategies available that may benefit from a rising inflationary environment. It is prudent to review investment performance and allocation to ensure it aligns with investment goals during these inflationary periods. Since most investors have a long-term investment timeframe, it doesn’t make sense to make dramatic changes based on current inflation or market conditions, but investors may want to consider some of these strategies as they navigate the current inflationary period.

For more information about hedging for inflation strategies, contact Joseph Turek, CFP® at joseph.turek@hilltopsecurities.com or (214) 859-5142.

To learn more about Momentum Independent Network, contact Wealth Management at WealthManagementInfo@hilltopsecurities.com or 833-4HILLTOP.

The paper/commentary was prepared by Momentum Independent Network (MIN). Momentum Independent Network Inc. is a registered broker-dealer and registered investment advisor that does not provide tax or legal advice. MIN and Hilltop Securities are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, TX 75201 (214) 859-1800, 833-4HILLTOP. Member FINRA/SIPC

For professional use only.

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