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How to Invest Against Inflation

Inflation is a form of wealth redistribution, and the key factor that determines when inflation will start. An investor would be wise to invest in this asset before it starts its inevitable rise.

The “how to invest during inflation 2021” is a process that has been going on for a while. With the recent economic problems, people are looking to find ways to protect their investments.

You’re not alone if you’ve noticed that the cost of practically everything is rising. The CPI (consumer price index) climbed by 6.2 percent during the previous 12 months, according to the US Bureau of Labor Statistics. With inflation at such a high level, I’ve devised a few techniques to ensure that your savings don’t diminish.

In general, the best method to hedge against inflation is to invest in assets that provide larger returns than inflation. These should ideally be assets with low risks or at least ones that are suited to a comfortable degree of risk.

What kind of investments are we discussing? In this piece, I’ll go through a few alternatives that I plan to use (as well as a couple that you should definitely avoid).


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Investing Strategies That Outperform Inflation

While current inflation is significant, it’s crucial to remember that it’s the consequence of supply shortages created by the COVID epidemic. The price of all commodities will stabilize when things settle down.

Inflation is often cyclical, rising at a rate of roughly 4% year over year over the long run. In reality, the Federal Reserve has set a target of keeping inflation below 2% every year.

With that in mind, here are a few investments that can easily outperform the average return of 4%.

Index funds that track the stock market

It doesn’t take a financial guru to figure out that the majority of publicly listed corporations earn far more than inflation. Stocks, on the other hand, may be quite dangerous. If you invest in the wrong firms, you’ll lose a lot more money than inflation would.

Fortunately, there is a solution: index funds. A mutual fund that tracks a major market index, such as the S&P 500, is known as an index fund.

In a nutshell, the index fund does nothing except replicate the index’s holdings. Investors may readily diversify and capture the broad market’s total return by doing so. Historically, this has been roughly 10% to 11% every year.

Even if we only look at the S&P 500’s performance in 2021, it’s up roughly 27%. (as of this writing). Over the present rate of inflation, that’s a net gain of 21%.

With M1 Finance, you may begin investing right now.

REITs (Real Estate Investment Trusts) or CREITs (Crowd-Funded

Real estate is another popular strategy for many investors to get returns that outperform inflation. What if, on the other hand, you’re not used to managing rental properties or flipping houses?

It’s no issue! There are two simple methods to enjoy the benefits of real estate ownership without ever touching a single physical property.

The first is to invest in a real estate investment trust, or REIT. These are businesses that are backed by tens of thousands of investors (similar to a mutual fund).

The REIT will use this money to acquire a full portfolio of assets, which are often huge commercial structures such as offices, retail malls, residences, medical facilities, and so on.

Investors get attractive rewards in exchange for their involvement. Dividend yields of 4 to 10% are pretty normal, depending on the kind of REIT and market circumstances. There are other REIT index funds (like the Vanguard VGSLX) that decrease risk while paying lower dividend returns.

Real estate crowdfunding is the second option to invest passively.

Investment returns

Many of the same advantages as REITs apply, including the ability to profit from large-scale commercial real estate and higher-than-average dividend rates (sometimes in the double digits).

When it comes to crowdfunded real estate, though, you’re investing directly in the project rather than in a firm. This implies that your money might be locked up for years, rendering it illiquid. However, you get greater insight into how your money is invested, as well as higher development opportunities.

With Fundrise, you may start investing in real estate right now.

Cryptocurrency Accounts Earn Interest

One of the lesser-known advantages of investing in cryptocurrencies is that certain platforms will offer you a reasonable interest rate on your holdings. BlockFi, for example, provides 4.5 and 5% interest to Bitcoin and Ethereum investors, respectively.

Granted, most crypto is quite volatile, making it an unattractive investment for most people. Stablecoins, on the other hand, are a viable alternative.

A stablecoin is a cryptocurrency that is pegged to a fiat currency, such as the United States dollar. For example, the price of the popular stablecoin Gemini Dollar (GUSD) stays constant at $1 at all times.

While it may not seem very interesting, consider that BlockFi offers GUSD investors a 9% interest rate. This implies you’ll get a net gain of about 5% over inflation by investing in an asset that should technically never fluctuate in value. Not too shabby!

With BlockFi, you can start investing in cryptocurrency right now.


Historically, investors have looked to gold as a strategy to protect themselves against inflation for the better part of a century. Given the speculative nature of gold’s value, however, this may or may not be a prudent decision.

Always diversify your investments to guarantee that you can outperform inflation.

investing in gold isnt going to protect you from inflation

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Investments That Aren’t Inflation-Protective

Some individuals use traditional methods to attempt to preserve their investments against inflation. These tactics, however, have become outdated and no longer operate as effectively as they once did.

Here are a few of the methods you should steer clear of.

Accounts of Savings

If you keep the majority of your money in a checking or savings account, you’re probably losing money.

This is merely an interest rate comparison. Since the national average savings account payout is at 0.06 percent, you’ve effectively lost 6.1 percent of your buying power in the last year.

Even high-interest online savings accounts (which used to have some of the finest interest rates) aren’t looking that promising. With rates in the 0.5 percent area, inflation is significantly below.

Bonds Arent Good Investments for inflation


Bonds have traditionally been seen as a means to offer stability to one’s portfolio while still earning rates over inflation. With bond rates so low, however, most bond-based mutual funds and ETFs are underperforming.

Even inflation-protected bonds, such as government I-bonds, are only keeping pace with the rate of inflation. The announcement of a 7.12 percent rate on I-Bonds by the Treasury recently piqued investors’ interest.

The majority of individuals are unaware that this is just a 6-month variable rate that is subject to change. Meanwhile, I-bonds have a fixed rate of 0.0 percent, so you’re basically breaking even.

Invest to Protect Yourself From Inflation

High inflation may eat away at your savings and wreck your retirement goals like nothing else. So don’t let that happen! Think beyond savings accounts, bonds, and gold when it comes to investing.

Instead, do your research and see what index funds, REITs, crowdsourced real estate, and stablecoin interest can accomplish for your portfolio.

The more money you put into assets that will provide consistent long-term returns, the less you’ll have to worry about inflation.

Continue reading:

  • An Investor’s Guide for the Late Bloomer 
  • 7 Ways to Start Investing for Less Than $100 Right Now
  • What Impact Does Inflation Have on My Retirement?

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How to Invest Against Inflation first published on Minority Mindset.

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The “how to hedge against inflation in 2021” is a good way of investing for people who are concerned about the rising cost of living. It works by buying assets that will increase in value as inflation rises.

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