Where To Invest Your Money When Inflation Is High — and What Investments To Avoid

Person using tablet to invest in stocks.
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Inflation fears in the United States have many Americans thinking about how to protect their money against rising prices and higher costs of living. This requires strategizing on which investments to gravitate toward — and which to avoid.

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As the BBC reported in May 2021, consumer prices in the U.S. rose 4.2% during the 12 months ending in April, which was the biggest increase since September 2008. Higher prices for cars and food drove much of the increase.

When prices push higher, your money doesn’t go as far — especially for those on fixed incomes, like retirees. Rising prices also bring the threat of higher interest rates, which tend to drag down equities, CNBC reported.

So where should you put your money?

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First off, if you have investments in stocks, don’t start panicking just yet. It’s still too early to know if the U.S. is headed for an extended period of inflation or if the current situation is a temporary blip caused by COVID-19 restrictions and lockdowns.

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Moreover, financial experts point out that historically, stocks tend to do well even during periods of inflation. CNBC referenced comments from Steve Hanke, a professor of applied economics at Johns Hopkins University, who said the average annual return on stocks between 1990 and 2017 was 11%. Even when you factor in the cost of inflation, the average annual return was 8%.

Before looking at the best investments during inflation, it’s a good idea to know which ones to avoid. Experts interviewed by CNBC say you should shy away from long-term bonds and certificates of deposit, because buying them during periods of inflation means you might miss out on higher rates later. Short- to intermediate-term bonds are a better choice.

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You might also want to avoid growth stocks, which are companies with above-average expected earnings, during inflation. Alex Doll, president of Anfield Wealth Management in Cleveland, told CNBC that growth stocks “tend to perform worse because they expect to earn the bulk of their cash flow in the future. And as inflation increases, those future cash flows are worth less.”

In terms of investments that make good hedges against inflation, Business Insider listed the following:

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  • Stocks: As noted earlier, stocks still tend to beat inflation even though their growth might be slowed. The best areas to invest in during periods of inflation include technology and consumer goods.
  • Commodities: Precious metals such as gold and silver have traditionally been viewed as good hedges against inflation.
  • Real estate: Land and property, like commodities, tend to rise in value during periods of inflation. Because buying actual real estate can get expensive, you might consider investing in real estate investment trusts.
  • Alternative investments: These might include tangibles like fine art, vintage toys and trading cards, vintage cars and other collectibles. These all tend to make good hedges against inflation.
  • U.S. Treasury Inflation-Protected Securities: Although most bonds aren’t good choices during inflation, some bonds, like TIPS, offer interest rates that are indexed to inflation, meaning their interest payments rise along with the inflation rate.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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