Investments that Can Potentially Beat Inflation

Inflation is an insidious phenomenon. 

Though its origins are complex, its ultimate effect is simple: inflation drives up costs and erodes the purchasing power of cash. 

Consumers are well acquainted with inflation, as used cars now cost nearly as much as new cars, home furniture prices have jumped 17%, and even the cost of beef is up 20 percent.

On the whole, inflation rose 7 percent in 2021, the sharpest increase in nearly 40 years. 

Inflation is truly an invisible tax. So how can investors protect and grow their wealth during such punishing periods? 

There are no easy solutions, and even Warren Buffet admits that inflation is like “running up a down escalator.”

Fortunately, these three investments provide consumers with the potential to beat inflation:

1. Real Estate

Real estate is often considered the king of alternative investments. 

There are a few reasons for its popularity. 

For one thing, property values often rise with inflation. As landlords raise rent prices every year — typically to the tune of 3 to 5 percent — the total property value increases over time. 

Such long-term growth is further enhanced by short-term profits. After all, rent payments provide durable income streams and attractive yields. 

Interested investors have several entry points to access the world of real estate. 

For starters, you can contribute to the equity stack in specific real estate deals. In other words, you can invest in select retail properties, industrial buildings, and apartment complexes of your choosing.  

Be aware that this approach can often involve a considerable financial investment, legal liability, and ongoing engagement with the property. 

Conversely, if you prefer to make a more “hands off” investment, you can also pursue Real Estate Investment Trusts (REITs).

As a type of real estate fund — i.e. an ETF for real estate properties — REITs finance a pool of income-producing properties. While generating consistent dividends, REITs typically do not require the granular engagement associated with individual properties. 

2. Commodities

Commodities have long been a reliable hedge against inflation, particularly over the last 30 years.

In fact, recent studies show that a 1 percent rise in inflation typically produces a 7 to 9 percent rise in commodities. 

The four trading categories of commodities include: energy, agriculture, metal, and livestock. Commodities, therefore, can comprise anything from aluminum and copper, to coffee, crude oil, and corn. 

It’s important to note that commodities are typically more volatile than other assets, as prices remain dependent on variables like geopolitics, weather, and speculation (particularly when investors buy and sell oil futures). 

Despite supply chain issues and pandemic-induced volatility, 2021 year was very profitable for raw materials and products, as commodities saw 37.95 percent growth.

As an investor, you’ll have the option to either invest directly in a physical commodity or indirectly, by purchasing shares in mutual funds or exchange traded funds (ETFs).

Gold: A Brief Retrospective 

Though gold is certainly a commodity — and perhaps the most legendary of raw materials — it’s deliberately absent from this list. 

While frequently touted as a hedge against inflation, gold hasn’t delivered a positive return during periods of inflation since the 1970s (shortly after President Nixon abandoned the gold standard). 

According to recent research at Duke University, “it’s only when measured over very long periods—a century or more—that gold has done a relatively good job maintaining its purchasing power.” 

In 2021, gold was down -6.06 percent from the previous year. 

Though gold is a physical asset that holds its own value, it pays no yields and remains an inferior investment hedge when compared to other commodities. 

Or, as Warren Buffett bluntly put it, “[Gold] has no utility.”

3. Stocks 

In the digital era, cryptocurrency, stablecoins, and NFTs are touted as the ultimate hedges against inflation. 

Without condemning these investments, we’ll diplomatically defer and admit, “It’s too early to tell.”

And yet, as celebrities like Jimmy Fallon buy digital art for $216,000, tried and true investments become increasingly appealing.

Over the long term, stocks typically offer the most upside potential. More specifically, businesses that require little capital often maintain profitability in inflation. 

That’s why the S&P 500 consistently beats inflation. 

After all, the S&P 500 features a panoply of the top communication and technology companies, like Apple, Comcast, and Microsoft (all of which require less capital than businesses dependent on natural resources). 

Generally speaking, the S&P 500 has been very strong over both the short and long run. 

At the end of 2021, for example, it reached record highs despite inflation surging to nearly 7 percent. Over the last decade, the S&P 500 has delivered an annual average return of 13.6 percent since 2011. 

While past performance is no guarantee of future results, it’s clear that strategically investing in stocks can provide a powerful hedge against inflation. 

Moving Forward

Successful investing requires patience and timing — particularly in periods of inflation. 

Remember: inflation erodes the purchasing power of cash. Though your cash reserves may temporarily inspire confidence, investing your money helps protect its purchasing power in the long run. 

If you’re putting your hard earned money in the stock market, you deserve to earn a return on your investment that equals or exceeds inflation. 

More importantly, you deserve advanced tools to help you make sound decisions in the heat of the moment.

RiskAlert™ puts you in the driver’s seat of your financial future.

While actively monitoring your investments, RiskAlert™ will immediately text or email you when your investments fall below your established risk tolerance percentage. 

These alerts don’t come hours, days, or weeks after the fact. 

Instead, RiskAlert™ reaches you in real time — so you can decide to buy, sell, or hold when it matters most. 

Invest with confidence, and reap rewards with RiskAlert™. 

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.