Inflation can cause economic uncertainty and stock volatility, which typically don’t bode well for equities.
However, historical data suggests that certain parts of the stock market tend to fare better than others during periods of rising consumer prices. In this section, we will examine nine “inflation-proof” investments that can help fortify your portfolio from inflation’s potential drag on the broader stock market.
These investments include a collection of stocks, exchange-traded funds (ETFs), and other assets. Keep in mind that many investments designed to beat back inflation can take it on the chin when consumer prices decelerate.
Thus, many of these stocks and funds might not be ideal buy-and-hold-forever investments. If you’re nimble and like to take a more active tack, however, they can be useful tools to stash in your investing toolbelt.
United States 12 Month Oil Fund LP
The United States 12 Month Oil Fund LP (USL) is a fund that invests in oil futures tied to West Texas Intermediate (WTI, aka U.S. crude oil), purchasing contracts over the next 12 months of futures. The USL is one of the most direct ways investors have of buying into oil and its inflation-fighting goodness. The fund has assets under management of $84.4 million and expenses of 0.90%.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) is an actively managed ETF that invests in a number of commodity-linked futures. By investing in PDBC, you’re exposed to everything from gasoline, WTI and Brent crude, to gold, copper, and zinc, to sugar, wheat and soybeans. PDBC stands out for its ability to provide diversified exposure to raw materials without making your taxes a nightmare. The ETF has assets under management of $5.6 billion and expenses of 0.59%.
Diamondback Energy (FANG) is an independent energy exploration and production stock that deals with oil and natural gas, operating primarily in the Permian Basin in West Texas. The stock is one of the best energy stocks to leverage oil’s strength as one of the best inflation-proof investments. Diamondback Energy has a market value of $26.7 billion and a dividend yield of 7.8%.
Vanguard Real Estate ETF
The Vanguard Real Estate ETF invests in real estate investment trusts (REITs) that own and operate income-generating real estate properties. REITs are an attractive option for investors looking for inflation protection because they are required to pay out at least 90% of their taxable income to shareholders annually in the form of dividends. The Vanguard Real Estate ETF has assets under management of $62.5 billion and expenses of 0.12%.
Alexandria Real Estate Equities
Alexandria Real Estate Equities is a real estate investment trust that specializes in life sciences and technology campuses. The company’s properties are leased to tenants in the biotechnology and pharmaceutical industries. The stock is an attractive option for investors looking for inflation protection because of its focus on life sciences and technology, which tend to perform well during periods of rising consumer prices. Alexandria Real Estate Equities has a market value of $30.4 billion and a dividend yield of 2.5%.
Vanguard Short-Term Inflation-Protected Securities ETF
The Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) invests in U.S. Treasury Inflation-Protected Securities (TIPS) with maturities of one to five years. TIPS are designed to provide protection against inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI). VTIP has assets under management of $26.4 billion and expenses of 0.05%.
Series I Savings Bonds
Series I Savings Bonds are a type of U.S. Treasury bond that provides inflation protection. The bonds are indexed to inflation and pay a fixed interest rate plus an additional rate that adjusts for changes in the CPI. Series I Savings Bonds are an attractive option for investors looking for inflation protection because they are backed by the U.S. government and are exempt from state and local taxes. The bonds have a minimum investment of $25 and a maximum investment of $10,000 per person per year.
Fidelity Stocks for Inflation ETF
The Fidelity Stocks for Inflation ETF (FCPI) is an actively managed ETF that invests in companies that are expected to benefit from rising inflation. The ETF invests in companies that have pricing power, strong balance sheets, and the ability to pass on higher costs to consumers. FCPI has assets under management of $60.5 million and expenses of 0.29%.
Horizon Kinetics Inflation Beneficiaries ETF
Horizon Kinetics Inflation Beneficiaries ETF (INFL) is an exchange-traded fund that seeks to provide investors with exposure to companies that are expected to benefit from inflation. The fund invests in a diversified portfolio of companies across various sectors, including commodities, real estate, infrastructure, and energy.
Some potential benefits of investing in INFL include:
- Inflation protection: The fund invests in companies that are expected to benefit from rising inflation, which can provide a hedge against inflationary pressures.
- Diversification: INFL invests across a range of sectors, which can help to spread risk and provide exposure to a broad range of inflation beneficiaries.
- Professional management: The fund is managed by Horizon Kinetics, a well-respected investment management firm with a long history of managing portfolios focused on inflation protection.
- Low cost: INFL has a relatively low expense ratio compared to other actively managed funds, which can help to improve returns over the long term.
It’s important to note that investing involves risk, and there is no guarantee that INFL will achieve its investment objectives. Before investing, it’s important to carefully consider your investment goals, risk tolerance, and financial situation, and to consult with a financial advisor if you have any questions or concerns.
Frequently Asked Questions
What are the best assets to invest in to protect against inflation?
Investing in assets like gold, real estate, and commodities can be a good way to protect against inflation. These assets tend to hold their value even when the value of currency decreases. One more you may not have considered is Indexed Universal Life. I wrote an article you may be interested in entitled Indexed Universal Life: A Reliable Retirement Plan? It’s not just for retirement, but a great investment that beats most others.
What are some businesses that are resistant to inflation?
Businesses that produce essential goods and services, such as healthcare, utilities, and consumer staples, tend to be resistant to inflation. These businesses can maintain their profitability even when prices rise.
Which stocks are known for being inflation-proof?
Stocks in industries like healthcare, utilities, and consumer staples are typically considered inflation-proof. Additionally, companies with strong pricing power and the ability to pass on cost increases to consumers can also be good inflation hedges.
What are the top 3 investments to safeguard against inflation?
The top 3 investments to safeguard against inflation are typically considered to be gold, real estate, and commodities. These assets tend to hold their value even when the value of currency decreases.
How can you inflation-proof your savings?
One way to inflation-proof your savings is to invest in assets like gold, real estate, and commodities. Additionally, investing in stocks in industries that are resistant to inflation can also be a good strategy.
What are some stocks to include in a 10-stock inflation protection portfolio?
Some stocks to consider for an inflation protection portfolio include Johnson & Johnson, Procter & Gamble, Coca-Cola, PepsiCo, and Walmart. These companies produce essential goods and services and have a history of maintaining profitability even in times of inflation.
This weeks action steps:
Start using a spreadsheet to list your probable investments into. Make notes of the benefits of each one and a timeframe of when you will be ready to invest money into them.
See you next week!
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