The Best Assets To Own In Order To Hedge Your Portfolio Against Inflation
Inflationary concerns are on the rise, which has weighed on supply chains and overall valuations -- should investors still be buying stocks?
Nov. 26, 2021

Freefalling stocks have sent investors into a panic with the age-old questions cropping up; is it time to sell? Will markets rally? Is this just a short-term correction?

And of course; "where do I invest if inflation is rising?"

Inflation and its impact

The annualized inflation rate in the U.S. is now sitting at 6.2% -- that's the highest it has been in more than 30 years, so yes, it's something to keep in mind. However, in periods of inflation, investors can be more concerned about preserving wealth, rather than creating it.

Many asset classes spring to mind; cash, stocks, property, commodities like gold and silver, and given its popularity now, crypto is on investor's radar too. Let's compare the options.

Asset Classes

Savings accounts are at a loss; with interest rates still at record lows, any money left lying up in savings are losing 6.2% of their value now, per year.

Gold has historically been the go-to inflation hedge, due to its nature as a store of value. The keyword here is hedge -- you won't necessarily make a return by investing in gold, but you may limit your losses compared to keeping money in cash at least.

Property is actually a good choice, once the demand is there. Most recently, this was the case in states like California where we saw demand-push inflation -- this is where demand outweighs supply, and in this case, it causes home prices to rise. It's quite normal, especially in prime real estate areas, despite many commentators screaming "property bubble!".

The 2008 property crash, will always run shivers down investors' spines, but in general, property is quite stable. It does, however, come with the consequence of being highly illiquid i.e. it takes time to sell property, you can't just submit a sell order on your phone or desktop.

Another thing to note is the taxation on income from property, which will vary, depending on where you are living.

The crypto argument as an inflation hedge has been made, but there's no actual track record. The space only has a 12-year history to look back on, during a period of relatively low inflation in developed economies so there's uncertainty as to how crypto will actually respond. It doesn't necessarily correlate identically with the stock market, but it has reacted similarly during levels of high market volatility.

Contrary to the savings account argument, some crypto brokerages offer staking services (earning interest on your crypto assets essentially) that could combat inflation, but in doing so, investors would be entering a market of wild price swings and no regulation or protection.

Surprise, surprise. The stock market guys are going to say the best place to be during inflation is the stock market.

Pretty much.

Stocks or equities have historically outperformed all other asset classes over the long run -- in the short run, not so much -- this is why we always preach for investors to think long-term.

Not that it's perfect; some stocks will outperform in periods of high inflation, while others will struggle, but markets eventually stabilize.

This is because rising costs are passed on to consumers by businesses, also known as cost-push inflation -- wow, I feel like I'm back in high school economics class -- but this means company revenue, sales, and profits also rise, so businesses aren't really at a loss.

Where it becomes an issue is with wages; increased labor costs for businesses can be harmful or income disparity for individuals if wages don't increase in line with inflation (generally the case).

All in all, nothing beats a diversified portfolio of assets when managing wealth, but for the reasons outlined above, stocks are a winner long-term.

Ready to start investing in stocks with huge potential? Check out our list of market-beating companies so you can get on the path to financial freedom. Get free access now.

Top Ten Stocks To Buy Now
Commit to your future wealth today and join 1000s of subscribers receiving:
  • New stock picked every week out of 60,000 worldwide
  • Ten Foundational stocks to hold until 2034
  • A library of 60 stocks with analysis
  • 10 year Track record of performance
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.







This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.