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

Young millennial using technology for his investment and on line banking.
Tempura / Getty Images

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.

Making Money: The Most Fascinating Things You Never Knew You Could Invest In
See: Investing for Beginners: What First-Time Investors Need To Know

As the BBC reported in May, 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?

Don’t Miss: 8 Tips To Get Rich in Real Estate
Find: Why You Shouldn’t Worry About All Those Price Hikes in the News

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.

Building Wealth

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.

See: 4 Ways To Protect Retirement Savings From Inflation
Find: 9 Safe Investments With the Highest Returns

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:

See: 13 Ways To Invest That Don’t Involve the Stock Market
Find: The 9 Best Stocks for Beginners

Building Wealth
More From GOBankingRates

Last updated: Aug. 16, 2021

    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 MagazineStreet & 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. 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, will be published in 2021 by Atmosphere Press.

    Untitled design (1)
    Close popup The GBR Closer icon

    Sending you timely financial stories that you can bank on.

    Sign up for our daily newsletter for the latest financial news and trending topics.

    Please enter an email.
    Please enter a valid email address.
    There was an unknown error. Please try again later.

    For our full Privacy Policy, click here.