How To Hedge Against Inflation And Keep Your Finances Safe

Camino Financial11 Jan 2024
How To Hedge Against Inflation And Keep Your Finances Safe
Knowing how to hedge against inflation will allow you to keep your money from losing value during this negative economic period. You'll also be able to keep your business and personal finances safe, so you can meet your future financial goals. Read on to learn about keeping your finances safe against inflation.

What Is Hedging?

Hedging refers to investing in something that protects the decreasing value of free cash flow. By hedging, you can stay on top of the increase in prices and the decrease in the value of a dollar. That way, your money won't lose as much value and you'll still have purchasing power. Depending on your investments, it may even gain a bit in value throughout a period of high inflation.

Why You Should Hedge Against Inflation

If you know how to hedge against inflation, you can enjoy the benefits of the best investments during inflation while avoiding a decline in your purchasing power and protecting your bottom line. Here are some reasons for learning to hedge against inflation.

Avoid Losing Value

One of the best reasons for hedging against inflation is to protect the value of your money. Rising inflation can significantly reduce the buying power of a dollar. If you have a lot of money in the bank, you could lose even more if you don't invest it. Hedging can give you some peace of mind that your money will retain its value.

Keep From Relying on a Raise

During tough times, many people ask their bosses for a raise. However, a raise might not always outpace the rate of inflation. If you can use a few investment strategies, you won't have to worry about getting as big of a raise. Sure, you probably will want a raise so that you can pay for your expenses, but it won't be as big of an issue if you don't get the money you need.

Earn Money

Investing isn't necessarily easy money, but it's easier than getting a second job or working more hours on your business. The best way to make money is to put any extra money into some investments so that the cash works for you. Then, consumer prices might not be as big of a problem.

How to Hedge Against Inflation: 12 Best Ways 

If you want to know how to survive inflation and protect yourself from the declining purchasing power, the good news is that you have multiple options (both investments and strategies). Keep in mind that not all tactics work for everyone, so choose the strategies that make sense for you.


Gold and other precious metals can be some of the best investments for wealth management during inflation. For one, these metals don't have any ties to the value of other currencies, so their value doesn’t decrease during inflation. Also, you may be able to use gold as a different form of currency to buy things. So if you can't access cash, you'll still get to purchase items, especially if you need to travel somewhere that's also in the midst of inflation.


Commodities refer to things that you can trade as alternate forms of currency. Precious metals are one example, but commodities can also include agricultural products, raw materials, oil, gas, and even foreign currencies. It’s a good idea to invest in commodities because, during a rising-inflation period, their value tends to go up, especially if the supply of that commodity is low. An EFT (Exchange-Traded Fund) is a good way of investing in commodities. Investing in commodities can be risky because the fluctuation of the value is unpredictable.


Another option for what to do in inflation is to purchase bonds. You can choose from short-term bonds, floating-rate bonds, and the Bloomberg Aggregate Bond Index. As mentioned earlier, bonds can increase in value even when the prices of stocks fall. If you want a safer inflation hedge, joining the bond market is an excellent safeguard for your money.


You can also invest in stocks as a strategy during inflation. You can research different stocks and find companies that are likely to grow. Now, you'll do better with this strategy if you know the market well or if you hire a financial advisor to help. Still, it's a great addition to your investment portfolio.

60/40 Stock/Bond Portfolio

If you want to invest in the stock market, consider using a 60/40 stock/bond portfolio. As the name suggests, you'll invest 60% of your money in stocks and the remaining 40% in bonds. In general, if the value of stocks falls, the value of bonds will increase. That means, with a diversified portfolio you can protect your investments from experiencing a complete drop in value. You also won't have to worry about choosing the best stocks during inflation.


Real estate investment trusts (REITs) are another great investment to prepare for inflation. You can use them to reduce the risk of your overall portfolio, and you may see greater returns during inflation. Unlike traditional real estate investments, you don't need as much money to buy a property. That allows more people to take advantage of the security of property without investing as much.

S&P 500

Instead of worrying about which stocks to buy, invest in the S&P 500. You can find an index fund that ties its value to the overall market, which can be less risky than buying individual stocks. Investing in any type of index fund can be a great option for surviving inflation. You'll rely on the success of a variety of companies rather than one business.

Real Estate

Real estate is one of the best asset classes you can invest in. People are always going to need a place to live, so you can rely on rent to come in each month. You'll also be able to control how much you charge for rent, so you can make sure the rate keeps pace with inflation. Of course, you'll need to buy property before you can do this, but it's a great method for preparing for inflation.


TIPS or Treasury Inflation-Protected Securities tie the value of the principal to inflation and deflation. You'll receive interest payments two times a year, and the payments depend on the principal. Since the principal increases with inflation, the interest rates rise as well, so you can get the money you need to protect your finances.

Leveraged Loans

Leveraged loans are high-risk financial products. Lenders design them for people or businesses who already have debt or whose credit history is poor. As such, they are more expensive to the borrower. You might also be able to lend out leveraged loans, so you can earn a higher interest rate on the riskier investment.


A newer option for how to protect against inflation is to invest in cryptocurrency. Be sure to do your research on cryptocurrencies that are more likely to gain value in the future. Then, you can put your money into those investments now, and it may pay off. But like any investment, cryptocurrency is a risk, and it's not for everyone. Nowadays, the cryptocurrency market has taken a downturn recently, but that gives you the chance to invest for less.


No matter what else you do, the best strategy for preparing for inflation is to diversify your investments. The more places you put your money, the less you'll rely on the success of any one strategy. In short, invest in several asset classes. For example, you won't have to worry about the stock market crashing if you have a diversified portfolio and only invest about 10% of your money in stocks. If you only rely on one or two tactics, you'll take on more risk.
#CaminoTip Take a money management class to better understand your finances and decide what's best for you.

Investments to Avoid During an Inflation

While many investments can be useful during inflation, some aren't as smart. Protect your money now and as inflation increases by avoiding the following investments.

Long-Term Fixed Investments

Be sure to avoid any long-term investments with fixed interest rates. By the time your investment period ends, the rate of inflation may have far outpaced the interest rate. That means your investment could lose value before you can even get the money.

Stocks in the Wrong Companies

The right stocks can be excellent investments during inflation. However, they can be a bad idea, especially if you don't know where to invest. You should avoid investing in companies that aren't doing well. Be sure to review your investments, and move them if a stock seems like it will lose significant value.

Savings Accounts

Savings accounts are great for your emergency fund and some extra cash. However, don't keep all of your money there because these accounts usually have low-interest rates. Even high-yield savings accounts might not earn as much as other types of investments. If inflation rises, your money could even lose some of its value.

How to Take Advantage of Rising Prices

Fortunately, business owners can take advantage of the rising prices that come with inflation. That way, you can still make enough money to support yourself and keep your company in business. Here are some tips to consider:
  • Raise the prices of your products and services
  • Attract customers with lower-priced options
  • Look for a more affordable store location
  • Try to reduce your costs
#DidYouKnow A business with low capital needs that have high prices has a better chance of thriving in an inflationary environment.
As a business owner, you get to control how much you charge people. If you've wanted to raise rates for a while, inflation is the perfect time to do it since people already expect an increase in the consumer price index.

Hedge Against Inflation By Investing In Your Business

Understanding how to protect against inflation is essential if you want to safeguard your long-term purchasing power. Even a small amount of inflation can erode the interest you earn on savings, for example. Fortunately, you can choose from a variety of investments to protect your money. Be sure to consider gold, commodities, stocks, and treasury bonds as you start to plan for inflation. Another great investment is your business itself. By making smart and savvy investments, you can grow your company so it’s better poised to face financial challenges. Sometimes, though, the only way to make these investments is with the help of external capital. Do you need a loan to start a new business or begin investing during inflation? Request a loan quote. Apply now!


What is the most common hedge against inflation?

Gold is the most common inflation hedge. It can work as a currency itself if necessary, so you can still purchase certain items.

What is the best investment during inflation?

The best investment during inflation for most people is TIPS (Treasury Inflation-Protected Securities). You'll earn more in interest as inflation increases, and you don't have to risk buying stocks that will lose value.

Are CDs a good hedge against inflation?

Certificates of deposit (CDs) aren't a good hedge against inflation. While they pay higher interest rates than savings accounts, they have fixed interest rates and usually long terms, so they could lose value.

Are annuities a good hedge against inflation?

Annuities can be a good inflation hedge depending on the type you select. We recommend that you compare types to choose the best investment for you.

Is whole life insurance a good hedge against inflation?

Whole life insurance is a great inflation hedge. It pays you in dividends and interest and guarantees your returns on your insurance policy.

Which type of annuity is a hedge against inflation?

Graduated-payment annuities will go up with the rate of inflation, so you can make more as inflation rises. That makes them the best option if you want to protect against inflation.

Which savings bond is the best hedge against inflation?

Series I savings bonds are the best inflation hedge. The "I" stands for inflation, and the purpose of these bonds is to keep up the value with the inflation rate.

*You should not consider the opinions in this article as investment advice.


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