What to Invest During Inflation: 8 Proven Assets to Protect Your Portfolio.

Key Takeaways

• Treasury inflation protected securities and real estate are among the most reliable inflation hedges, with treasury inflation protected securities offering direct consumer price index adjustments and real estate providing rent escalation potential
• Commodities, particularly energy and precious metals, tend to rise with inflation but carry higher volatility and should comprise only 5-10% of most portfolios
• Consumer staples stocks and utility companies can pass rising costs to customers, making them more resilient during inflationary periods than growth stocks
• Diversification across multiple asset classes is essential since no single investment guarantees inflation protection in all economic environments
• With 2025 inflation rates still above the Federal Reserve’s 2% target, investors should prioritize assets that adjust with rising prices rather than fixed income securities

Best Inflation-Resistant Investments for 2025

With inflation rates persistently above the Federal Reserve’s 2% target throughout 2025, many investors are discovering that their traditional savings account and fixed income investments are losing purchasing power. The consumer price index has shown us inflation’s continued impact on everything from energy prices to raw materials, creating an urgent need for inflation protection strategies.

Understanding what to invest during inflation requires examining how different asset classes have performed during past inflationary environments. History shows us that during periods of rising inflation, certain investments consistently outperform others. When inflation rises, asset classes like treasury inflation protected securities, real estate, and commodities tend to maintain or increase their value, while fixed income securities often struggle.

Current market conditions in 2025 present unique challenges. Economic developments including supply chain disruptions, labor statistics showing wage growth pressures, and geopolitical tensions continue influencing commodity prices. The federal government’s monetary policy responses have created an environment where many investors are significantly affected by the need to restructure their portfolios.

Traditional allocation strategies that worked during low inflation periods may not provide adequate protection when prices rise consistently. A well-diversified approach across multiple inflation hedges becomes essential, as past performance is no guarantee of future results. However, historical data provides valuable insights into which asset classes tend to beat inflation over time.

For investors with different risk tolerance levels, the key is finding the right balance. Conservative investors might prioritize treasury inflation protected securities and real estate investment trusts, while those comfortable with greater price volatility might increase exposure to commodities and emerging markets. The goal remains consistent: preserving and growing purchasing power even as the overall price level increases.

Treasury Inflation-Protected Securities (TIPS)

Treasury inflation protected securities represent one of the most direct ways to protect against inflation risk. These federal government bonds adjust both their principal value and interest payments based on changes in the consumer price index, ensuring that investors maintain purchasing power regardless of how much inflation increases.

The mechanics of treasury inflation protected securities are straightforward. When inflation rises, the principal value of the bond increases proportionally. This adjusted principal then serves as the basis for calculating interest payments, which means both the bond’s value and its income stream grow with inflation. Current yields on treasury inflation protected securities hover around 1.2% above inflation, providing a real return that traditional bonds cannot match.

However, treasury inflation protected securities come with important tax ramifications. The federal government taxes the inflation adjustment to principal value as income each year, even though investors don’t receive this money until the bond matures. This “phantom income” taxation can create cash flow challenges, particularly in high inflation environments when the adjustments are substantial.

Investors can access treasury inflation protected securities through individual bond purchases or through mutual fund and exchange traded fund options. Individual treasury inflation protected securities allow investors to hold bonds to maturity, eliminating interest rate risk but requiring larger minimum investments. Mutual funds and exchange traded fund options provide diversification across different maturity dates and lower minimum investments, though they introduce some liquidity risk and market value fluctuations.

TIPS vs Traditional Treasury Bonds

The decision between treasury inflation protected securities and traditional Treasury bonds often comes down to breakeven inflation rates. This metric represents the inflation rate at which treasury inflation protected securities and regular Treasuries provide equal returns. When actual inflation exceeds the breakeven rate, treasury inflation protected securities outperform conventional bonds.

As of 2025, the 5-year breakeven inflation rate sits around 2.5%, while recent consumer price index readings have consistently exceeded 3%. This suggests that treasury inflation protected securities may continue outperforming traditional bonds, assuming current inflationary pressures persist. However, investors should remember that investing involves risk, and economic conditions can change rapidly.

Secondary market trading of treasury inflation protected securities can be more volatile than many investors expect. Bond prices tend to fluctuate with changing real interest rates and inflation expectations, not just actual inflation. During periods when interest rates rise faster than inflation expectations, even treasury inflation protected securities can experience temporary price declines in the secondary market.

Real Estate and REITs

Real estate has historically served as one of the most effective inflation hedges available to investors. Property values and rental income typically increase alongside general price levels, providing both capital appreciation and income growth that helps maintain purchasing power. When inflation increases, landlords can often raise rents, while property values adjust upward to reflect higher replacement costs.

Real estate investment trusts offer a liquid way to gain exposure to this asset class without the complications of direct property ownership. These professionally managed companies own and operate income-generating real estate across various sectors, from residential apartments to commercial office buildings, healthcare facilities, and industrial warehouses. During inflationary environments, real estate investment trusts can pass rising costs to tenants through lease escalations while benefiting from property value appreciation.

Historical performance data strongly supports real estate’s role as an inflation hedge. During the 1970s stagflation period, when consumer prices rose dramatically, real estate investments significantly outpaced inflation while many other asset classes struggled. Real estate investment trusts have shown similar resilience in recent inflationary periods, though their performance can vary by sector and geographic location.

Different types of real estate investment trusts offer varying degrees of inflation protection. Residential real estate investment trusts benefit from housing demand and rent growth, while commercial real estate investment trusts may have longer-term leases that limit immediate rent adjustments. Healthcare and industrial real estate investment trusts often include inflation escalation clauses in their leases, providing more direct inflation protection.

However, real estate investment trusts face challenges during rising interest rate environments. As the Federal Reserve raises rates to combat inflation, higher yields on alternative investments can make real estate investment trusts less attractive, potentially causing their prices to decline despite strong operational performance. This interest rate sensitivity means that real estate investment trusts may underperform initially when rising interest rates begin, even if they ultimately benefit from the inflationary environment that prompted the rate increases.

Direct Real Estate vs REITs

Direct real estate ownership offers potentially superior inflation protection compared to real estate investment trusts, particularly for investors who can actively manage properties and adjust rents frequently. Property owners have direct control over rental rates and can implement immediate rent increases in markets that allow it. Additionally, direct ownership eliminates management fees and provides potential tax benefits through depreciation deductions.

Real estate investment trusts provide several advantages that make them more suitable for many investors. Professional management eliminates the time and expertise required for property management, while geographic and property type diversification reduces concentration risk. Real estate investment trusts also offer superior liquidity, allowing investors to buy and sell shares easily rather than going through lengthy property sale processes.

The tax considerations differ significantly between direct ownership and real estate investment trusts. Direct property ownership allows for depreciation deductions and potential 1031 exchanges to defer capital gains, while real estate investment trusts provide pass-through taxation that can result in higher current income tax obligations. Personal finance situations and investment objectives should guide this decision, as both approaches can provide effective inflation protection.

Commodities and Precious Metals

Commodities represent one of the most direct plays on inflation, as rising commodity prices often drive broader price increases throughout the economy. Energy prices, agricultural goods, and raw materials all tend to increase when inflation accelerates, making commodity investments a natural hedge against declining purchasing power.

Gold has historically served as the archetypal inflation hedge, with prices often moving inversely to the purchasing power of fiat currencies. During the 1970s stagflation period, gold prices rose over 1,400% as investors sought protection from rapidly declining currency values. However, the relationship between gold and inflation isn’t always linear, and periods of economic stability can see gold prices decline even during moderate inflation.

Energy commodities including oil, natural gas, and renewable energy infrastructure have shown strong performance during recent inflationary periods. These commodities benefit directly from supply-demand imbalances and geopolitical tensions that often accompany inflationary environments. Many investors gain exposure through energy-focused exchange traded fund options rather than direct commodity investments.

Agricultural commodities and base metals like copper and aluminum also benefit from inflationary pressures. Agricultural goods face increased demand from growing populations while supply remains constrained by available farmland and weather conditions. Industrial metals benefit from infrastructure spending and manufacturing demand that often accompanies economic development and inflation.

However, commodities carry significant volatility risks that make them unsuitable as core portfolio holdings for most investors. Commodity prices can experience dramatic swings based on weather, geopolitical events, and economic cycles that have little to do with inflation. Financial professionals typically recommend limiting commodity exposure to 5-10% of total portfolio value to capture inflation benefits while managing downside risk.

Gold as Inflation Hedge

Gold’s role as an inflation hedge extends beyond simple price appreciation to include its function as a store of value during currency devaluation. When fiat currencies lose purchasing power due to inflation, gold often maintains or increases its value in those currency terms. This relationship has held particularly strong during periods when inflation exceeds 3% annually.

Investors can access gold through several methods, each with distinct advantages and limitations. Physical gold ownership provides the most direct exposure but requires storage and insurance costs that can erode returns. Gold exchange traded fund options offer liquidity and eliminate storage concerns while maintaining close price correlation to physical gold. Gold mining stocks provide leveraged exposure to gold prices but introduce company-specific risks and may not correlate perfectly with gold prices.

Storage and insurance costs for physical gold can significantly impact returns, particularly for smaller investors. Professional storage facilities typically charge annual fees of 0.5-1% of gold value, while insurance adds additional costs. These expenses must be weighed against gold’s potential inflation protection benefits when determining appropriate allocation levels.

Inflation-Resistant Stock Sectors

Not all stocks perform equally during inflationary periods, making sector selection crucial for equity investors seeking inflation protection. Companies with strong pricing power and essential products or services tend to outperform during rising inflation, while those with high input costs and competitive pressures often struggle.

Consumer staples companies represent one of the most reliable inflation-resistant sectors. Companies like Procter & Gamble, Coca-Cola, and Unilever produce essential goods that consumers continue purchasing regardless of price increases. These companies often possess strong brand loyalty and pricing power that allows them to pass higher input costs to consumers while maintaining profit margins.

Utility companies provide another inflation-resistant option, particularly those with regulated rate structures that include automatic inflation adjustments. Many utility companies operate under regulatory frameworks that allow regular rate increases tied to inflation measures, providing direct inflation protection for investors. Additionally, utilities generate essential services that maintain consistent demand regardless of economic conditions.

Energy sector stocks benefit directly from rising commodity prices that often drive broader inflation. Oil and gas companies, renewable energy developers, and energy infrastructure operators all tend to see revenues and profits increase when energy prices rise. However, energy stocks can be volatile and cyclical, requiring careful consideration of market timing and allocation size.

Healthcare companies with essential services and prescription pricing flexibility also demonstrate inflation resistance. Healthcare demand remains relatively inelastic, and many healthcare companies can adjust pricing annually or even more frequently. Pharmaceutical companies with patent-protected drugs often possess significant pricing power during their exclusivity periods.

Financial sector stocks, particularly banks, can benefit from rising interest rates that typically accompany inflationary periods. As interest rates rise, banks can charge higher rates on loans while often maintaining relatively stable deposit costs, expanding their net interest margins. However, this relationship depends on the shape of the yield curve and the pace of rate increases.

Value Stocks vs Growth Stocks During Inflation

Historical data consistently shows value stocks outperforming growth stocks during inflationary periods. Value stocks typically represent companies with established business models, steady cash flows, and reasonable valuations that can better withstand economic uncertainty. These companies often possess pricing power and lower debt levels that provide flexibility during challenging economic conditions.

Growth stocks, particularly those in the technology sector, face multiple headwinds during inflationary periods. Rising interest rates reduce the present value of future cash flows that growth stocks depend on for their valuations. Additionally, many growth companies operate with higher debt levels and negative or minimal current cash flows, making them more vulnerable to rising borrowing costs and economic uncertainty.

The technology sector’s vulnerability during inflation stems from both valuation concerns and operational challenges. Many technology companies trade at high price-to-earnings ratios based on future growth expectations, making them sensitive to rising discount rates. Additionally, technology companies often face higher input costs for semiconductors and other components during inflationary periods while operating in competitive markets that limit pricing power.

Dividend-paying stocks with histories of inflation-adjusted dividend growth policies provide attractive options for income-focused investors. Companies that have consistently increased dividends above the inflation rate demonstrate both financial strength and management commitment to shareholder returns. These stocks can provide growing income streams that help offset inflation’s impact on purchasing power.

International Stocks and Currency Diversification

International diversification becomes particularly important during U.S. inflationary periods, as dollar weakness often accompanies domestic inflation. When the dollar declines relative to other currencies, international investments provide natural hedging benefits for U.S. investors. Currency translation effects can boost returns even when underlying foreign investments perform modestly.

Emerging market exposure offers particularly attractive opportunities during inflationary periods, especially in commodity-exporting countries. Nations like Brazil, Russia, and South Africa benefit from rising commodity prices that often drive global inflation. Their stock markets and currencies tend to strengthen when commodity prices rise, providing both direct and indirect inflation protection.

European and Asian developed market stocks provide additional diversification benefits during U.S. inflation. Many European companies possess strong brands and pricing power in global markets, while Asian companies often benefit from growing domestic consumption and export opportunities. These markets may also be in different phases of their economic cycles, providing performance that doesn’t correlate perfectly with U.S. markets.

Currency hedged versus unhedged international funds present important considerations during inflationary periods. Unhedged funds provide full currency exposure, which can boost returns when the dollar weakens but creates additional volatility. Currency hedged funds eliminate currency fluctuations, focusing returns on underlying stock performance but potentially missing beneficial currency movements.

Financial professionals typically recommend international allocations of 20-30% for inflation protection and overall portfolio diversification. This allocation provides meaningful exposure to different economic conditions and currency movements while maintaining a substantial home country bias that many investors prefer. The specific allocation between developed and emerging markets depends on risk tolerance and investment objectives.

Floating-Rate Debt and High-Yield Bonds

Floating-rate debt instruments offer protection against rising interest rates that typically accompany inflationary periods. These securities adjust their interest payments periodically based on benchmark rates like the Federal Reserve’s target rate, ensuring that investors receive higher income as rates rise. This adjustment mechanism provides direct protection against the interest rate risk that affects fixed income investments.

Bank loan exchange traded fund and mutual fund options provide diversified access to the leveraged loan market, where companies with lower credit quality borrow at floating rates. These loans typically adjust quarterly based on prevailing interest rates, providing more immediate rate sensitivity than many other floating-rate options. However, credit quality considerations become important, as economic uncertainty often accompanies inflationary periods.

High-yield corporate bonds, while carrying higher credit risk, often provide yields sufficient to offset moderate inflation levels. Companies issuing high yield bonds typically operate in sectors that can benefit from inflation, such as energy and materials. However, credit quality analysis becomes crucial, as higher input costs and economic uncertainty can stress companies with weaker balance sheets.

Preferred stocks with adjustable dividend rates offer another floating-rate option for income-focused investors. These securities combine stock and bond characteristics, often providing higher current yields than common stocks while offering some protection against rising rates. However, preferred stocks can be complex instruments with unique tax implications and call provisions that require careful analysis.

Short-Term vs Long-Term Fixed Income

Short-term bonds and certificates of deposit perform significantly better than long-term fixed income securities during rising rate environments. Short-term instruments mature quickly, allowing investors to reinvest proceeds at higher prevailing rates as interest rates rise. This reinvestment opportunity provides protection against the purchasing power erosion that affects longer-term fixed-rate investments.

Treasury bills and money market funds serve as effective cash alternatives during inflationary periods, providing higher yields than traditional savings accounts while maintaining high liquidity. These instruments automatically capture rising rates as they mature and reinvest frequently, though they still may not fully offset inflation’s impact on purchasing power.

Duration risk becomes particularly important to understand during inflationary periods. Longer-duration bonds experience larger price declines when interest rates rise, potentially creating significant losses for investors who need to sell before maturity. Bond prices tend to move inversely to interest rates, making long-term bonds particularly vulnerable during periods when the Federal Reserve is actively raising rates to combat inflation.

What to Avoid During Inflationary Periods

Long-term fixed-rate bonds represent one of the worst investments during rising inflation periods. These securities lock investors into fixed coupon payments that lose purchasing power as prices rise throughout the economy. Additionally, when interest rates rise to combat inflation, bond prices fall, creating potential capital losses for investors who need to sell before maturity.

Growth technology stocks with high price-to-earnings ratios face multiple challenges during inflationary periods. Rising discount rates reduce the present value of their future cash flows, while higher input costs and potential economic slowdowns can impact their growth prospects. Many technology companies also operate with significant debt levels that become more expensive to service as interest rates rise.

Cash and low-yield savings accounts steadily lose purchasing power during inflationary periods. While these assets provide safety and liquidity, their returns typically fall far short of inflation rates, guaranteeing real losses over time. Even high-yield savings accounts rarely provide returns that fully compensate for inflation’s impact.

Consumer discretionary stocks often struggle during inflationary periods as rising costs reduce consumers’ disposable income. Companies selling non-essential goods and services face reduced demand as consumers prioritize essential purchases. Additionally, these companies often cannot pass through higher costs as easily as consumer staples companies.

Fixed-rate annuities and insurance products lock investors into returns that may not keep pace with inflation over long periods. While these products provide guarantees and insurance benefits, their fixed payments lose purchasing power over time during inflationary environments. Variable annuities may provide some inflation protection, but their complex fee structures often reduce their effectiveness.

Portfolio Allocation Strategy for Inflation Protection

Creating an effective inflation protection strategy requires balancing various asset classes based on individual risk tolerance and investment objectives. Conservative investors should prioritize preservation of purchasing power over growth, while aggressive investors may accept higher volatility in exchange for potentially greater returns.

Conservative investor allocation might include 40% treasury inflation protected securities, 30% real estate investment trusts, 20% inflation-resistant stocks focusing on consumer staples and utilities, and 10% commodities through diversified exchange traded fund options. This allocation prioritizes stability and income while providing meaningful inflation protection across multiple asset classes.

Moderate investor allocation could include 30% treasury inflation protected securities, 25% real estate investments including both domestic and international real estate investment trusts, 35% stocks weighted toward value and inflation-resistant sectors, and 10% commodities. This approach accepts somewhat higher volatility in exchange for greater growth potential while maintaining substantial inflation protection.

Aggressive investor allocation might include 20% treasury inflation protected securities, 20% real estate including both public and private real estate investments, 50% stocks with significant international exposure and sector diversification, and 10% commodities including precious metals. This allocation prioritizes long-term growth while maintaining meaningful inflation hedging.

Rebalancing frequency becomes particularly important during volatile inflationary periods. Many investors find quarterly rebalancing provides an appropriate balance between maintaining target allocations and avoiding excessive transaction costs. However, significant market movements may warrant more frequent adjustments to prevent portfolio drift from intended allocations.

Dollar-cost averaging strategies can help investors systematically build inflation-protected positions during uncertain periods. Rather than making large allocation changes all at once, investors can gradually increase exposure to inflation hedges over several months or quarters. This approach helps reduce timing risk while allowing portfolios to benefit from market volatility.

Frequently Asked Questions

Should I invest in gold or TIPS for better inflation protection?

Treasury inflation protected securities provide guaranteed inflation adjustment through consumer price index indexing, while gold offers potential higher returns but with significant volatility. Treasury inflation protected securities are backed by the U.S. government, making them safer than gold which produces no income. Consider both: treasury inflation protected securities for core inflation protection (10-20% allocation) and gold for portfolio diversification (5% maximum). Gold performs best when inflation exceeds 3% annually, while treasury inflation protected securities provide steady protection at all inflation levels.

How much of my portfolio should be in inflation-protected assets?

Conservative investors should allocate 60-70% to inflation-protected assets during high inflation periods. Moderate investors can allocate 40-50% to inflation hedges while maintaining growth investments. Aggressive investors might limit inflation protection to 30-40% to preserve long-term growth potential. Avoid over-concentrating in any single asset class, as diversification remains crucial for risk management, and all your investments should work together to achieve your financial goals.

Are REITs better than direct real estate ownership for inflation protection?

Direct real estate provides potentially higher inflation protection through rent control and property appreciation. Real estate investment trusts offer superior liquidity, professional management, and geographic diversification. Real estate investment trusts are more sensitive to interest rate changes than direct property ownership. Consider real estate investment trusts for most investors due to lower capital requirements and reduced management complexity, though personal finance situations vary significantly.

When should I reduce my inflation hedge investments?

Consider reducing inflation hedges when inflation falls consistently below 2% for several months. Monitor Federal Reserve policy shifts toward more accommodative monetary policy. Gradually rebalance rather than making sudden allocation changes. Maintain some inflation protection even during low inflation periods as insurance against future price rises, as economic conditions and economic developments can change rapidly.

Do international stocks really help during U.S. inflation?

International stocks benefit from dollar weakness that often accompanies U.S. inflation. Commodity-exporting countries’ stocks particularly benefit from rising global commodity prices. Currency translation effects can boost returns for U.S. investors during dollar decline. Consider both developed and emerging markets exposure for maximum diversification benefits during inflation, though investing involves risk and performance is no guarantee of future results.