High inflation requires adjusting your investment approach. Learn which assets typically outperform during inflationary periods and which to reduce exposure to when inflation is running hot.
During periods of high inflation (4%+), the standard investment playbook needs adjustment. Assets that performed well in low-inflation environments may struggle, while others become more valuable.
Stocks (long term): Companies can raise prices, increasing revenue and earnings. Stocks historically beat inflation over 10+ year periods, though they can underperform in the near term during inflationary spikes.
Treasury Inflation-Protected Securities (TIPS): US government bonds with principal that adjusts with CPI. If inflation is 5%, the principal increases 5%. Guaranteed real return of maturity yield above inflation.
I-Bonds: US savings bonds paying a combination of fixed rate plus inflation adjustment. When inflation is high, I-Bond rates are excellent. $10,000/year purchase limit per person.
Real estate and REITs: Rents typically rise with inflation, making real estate income streams inflation-protective.
Commodities: Oil, agricultural products, metals tend to rise with inflation because they are the inputs that drive inflation.
Value stocks: Companies with real earnings, low debt, and pricing power tend to outperform growth stocks during inflation (which hurts the discount rate applied to future earnings).
Long-duration bonds: Their fixed payments become less valuable in real terms as inflation rises. Interest rates rise to fight inflation, causing existing bond prices to fall.
Cash: Loses purchasing power in real terms at the inflation rate.
Growth stocks: High-multiple growth stocks are particularly hurt when rates rise to combat inflation.
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