Courtesy Hanna Horvath
To build a portfolio that can withstand high inflation, I always recommend I bonds.
I bonds are indexed to inflation and will never go below 0%. Right now, they’re worth 9.62%.
Other inflation-beating options include Treasury Inflation-Protected Securities, commodities, and real estate.
Maybe you’ve noticed your grocery bill has gone up, or those plane tickets you’ve been eyeing have gotten a lot more expensive. If rising prices have been on your mind the past few months, you’re not alone: Inflation hit 8.5% in March, the fastest rise in over 40 years.
Higher inflation means higher prices on just about everything, from food to gas to clothes. In fact, people are spending an average 10% more on groceries and 48% more on gas than they were just one year ago.
Rising inflation also affects investors — any investment that isn’t earning over 8.5% is losing its purchasing power. While there are some signs that inflation seems to be slowing down, everyone should still take steps to prepare their money for high inflation, including their investment portfolio.
As a financial planner, I believe in taking a proactive stance with your money, including building an investment portfolio that’s resilient. If you want to specifically take action and hedge against inflation, here’s my go-to option.
Series I savings bonds — or I bonds — are a stable investment
Series I savings bonds are a low-risk federal savings bond that’s indexed to inflation. They’re specifically designed to protect your money from inflation — and the Treasury Department recently announced that I Bonds issued through the end of October will earn an annualized rate of 9.62% for six months.
These bonds are safe places to park your money and help it avoid losing value due to inflation. Interest rates on these bonds are regularly adjusted for inflation — and if that wasn’t enough, series I bonds are exempt from state and local income taxes (a bonus if you live in a high-tax state).
You can buy up to $10,000 of I bonds per year. If you use your federal tax refund, you can purchase an extra $5,000, for a total of $15,000 per year.
Like with any investment, there are some downsides to consider. I bonds have a variable interest rate, which means it could fall in the future. But, the interest rate won’t go below 0% — so unlike stocks, you’re guaranteed your initial investment back when you redeem your bond.
Keep in mind that I bonds probably aren’t the best place for your emergency fund. You can’t access the money for at least 12 months, and if you redeem your bond before five years you’ll be docked the last three months of interest. If you have money that you don’t plan to touch for a few years, investing in an I bond is one of my best bets to combat inflation.
3 other inflation-fighting investments
If you’re looking for other ways to protect your money as prices rise, here are some other options:
Treasury Inflation-Protected Securities (TIPS)
Like I bonds, TIPS have interest rates that are indexed to inflation. When interest rates go up, the rate of TIPS go up, and vice versa. Unlike I bonds, you can buy up to $5 million in TIPS and sell your investment anytime you want.
Because TIPS are backed by the government, they’re a fairly safe investment. The price of TIPS moves in line with the Consumer Price Index, which can help protect your money against spikes in prices.
Real estate tends to perform better during periods of high inflation — as prices increase, the value of real estate tends to increase.
One way to invest in real estate is to go out and buy property (though the housing market is very hot right now). Another is to invest in a Real Estate Investment Trust, a company that owns income-producing real estate. Investing in a REIT allows you to participate in the real estate market without buying an entire home.
Tangible assets move up and down in value to the beat of their own drum and are less affected by things like inflation. For example, gold has long been considered a hedge against inflation. Other examples of commodities include raw materials like oil and crops.
Keep in mind that the value of commodities is based on supply and demand, making investing in commodities risky. If you want to invest in commodities, I would recommend only using money you can stand to lose.
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