3 Surprising Ways to Hedge Against Inflation | The Motley Fool (2024)

While the stock market has demonstrated some resiliency in the face of lingering inflation, investors have other opportunities too.

The last couple of years have been equal parts rewarding and challenging for investors. Inflation has impacted just about every major market sector, and has taken a toll on consumers and businesses alike.

Although inflation has cooled significantly from its peak of 9.1% in June 2022, the current rate of 3.5% is still above the Federal Reserve's target range in the neighborhood of 2%.

Indeed, investors have still been able to generate strong returns over the last year or so. Artificial intelligence (AI) and new breakthroughs in weight-loss treatments have propelled surging interest in the technology and pharmaceutical industries.

However, there are several asset classes outside of the stock market that can profit during inflationary surges. While some of the investments explored in this article might appear counterintuitive, each represents a proven diversification strategy, and an alternative opportunity that can provide a useful hedge against inflation.

1. Private equity

Have you ever read about a company that makes an interesting or compelling product only to learn that you can't invest because it's still private?

Generally speaking, investing in private companies is off limits to most investors. Unless you meet income or net worth thresholds that qualify you as an accredited investor, your ability to invest in private businesses will be limited.

Nevertheless, if you are an accredited investor, you may have access to opportunities in private equity. Private equity firms raise money from a syndicate of high-net-worth individuals and invest that capital on their behalf.

Usually, private equity firms choose a theme for their funds and invest in start-ups that meet certain investment criteria. The idea is that you'll gain exposure to a variety of businesses before they pursue an initial public offering (IPO) or get acquired by a larger competitor.

Outside of being an accredited investor, you could also explore the Destiny Tech100 (DXYZ 1.39%) fund, which has positions in SpaceX, Stripe, Epic Games, and other leading start-ups.

Private equity investments can be quite lucrative depending on how early you get an allocation. While there is substantial risk in investing in small, unproven businesses that are often led by first-time founders, the rewards can also be substantial.

3 Surprising Ways to Hedge Against Inflation | The Motley Fool (1)

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2. Art and precious metals

Two other classes of alternative assets are fine art and precious metals. Now, unless you frequently attend galleries or trade shows, you're probably not going to be one of the people who finds the next big artist while they're still relatively unknown. The thing is, you don't have to do that in order to profit from art.

Just as there are blue-chip stocks, there are "blue-chip" names in the art and jewelry markets in particular. Some of the largest gains in these asset classes come from notable artists that many people will recognize and appreciate. Finding a needle in a haystack is not required.

For those of us without the cash to buy a whole Rothko or Picasso of our own, one way to invest in fine art is through a platform called Masterworks. Just like a private equity firm, Masterworks raises capital and then deploys these funds into its target market: fine art.

After acquiring a piece of art, Masterworks securitizes the asset, allowing investors to purchase fractional shares of the piece through its trading platform. Some artists featured on Masterworks include Jean Michel Basquiat, Banksy, Andy Warhol, and Keith Haring.

Precious metals can also provide a hedge against inflation. More specifically, certain coins or even watches are rare and can be worth a lot of money. The main reason for this is that mints and jewelry companies often discontinue producing certain items after a period of time.

Rally is a platform similar to Masterworks; however, investors have access to far more asset classes than just fine art. On Rally, you can buy fractional shares in old Rolex watches or coins from shipping expeditions in the 1800s.

3. Collectibles

Remember Beanie Babies? As someone who grew up in the 1990s, the quantity of them I received as gifts is startling. I recall family members telling me to hold onto the plush stuffed toys because "they could be worth something one day."

While I never personally profited from my Beanie Babies, the strategy that caused the toys to go viral is worth discussing.

Beanie Babies were made by a company called Ty, which took a creative approach to marketing its stuffed animals. Namely, whenever a new Beanie Baby was released, Ty manufactured it in limited amounts and for a limited period before discontinuing production -- creating a sense of scarcity to entice consumers.

A great example of scarce collectibles is trading cards -- and I'd wager you have a few of those stored away in a closet, attic, or basem*nt.

Sports cards, Pokémon cards, and Magic: The Gathering cards are some of the most highly sought-after collectibles. Moreover, given the variety of sets and collections among these brands, some trading cards are considered extremely valuable due to their rare natures and limited circulation.

For example, rookie cards for professional athletes tend to fetch generous sums. The reason is simple: You're only a rookie once, so by definition, there are only so many cards for a first-year athlete.

Just two years ago, a Mickey Mantle rookie card sold for over $12 million. The catch? The card was in mint condition. Considering the card is from 1952, it's astonishing someone was able to take such good care of it for so long.

In the trading card world, collectors can send their items to grading agencies. These businesses will preserve your cards in a plastic case (known as a slab) and assign a grade relative to the condition of the item.

To put the potential of collectibles into perspective, consider that over the last two years, eBay acquired a couple of marketplaces in the space. In 2022, eBay spent almost $300 million to acquire TCGplayer. And early this month, the company acquired leading auction house Goldin.

Given the themes from above, now may be a good time to dust off your storage bins in the attic. You might just be sitting on a pile of gold and not even know it.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends eBay and recommends the following options: short July 2024 $52.50 calls on eBay. The Motley Fool has a disclosure policy.

3 Surprising Ways to Hedge Against Inflation | The Motley Fool (2024)


What is the #1 hedge against inflation? ›

Real Estate Income

This results in the landlord earning a higher rental income over time. This helps to keep pace with the rise in inflation. For this reason, real estate income is one of the best ways to hedge an investment portfolio against inflation.

What is the best way to hedge against inflation? ›

5 Ways to Hedge Against Inflation
  1. Move Your Money into a High-Yield Savings Account. If you have your money stashed in a checking or basic savings account—or worse, at home—inflation erodes the value over time. ...
  2. Buy Treasury Bonds. ...
  3. Invest in the Stock Market. ...
  4. Diversify Your Portfolio. ...
  5. Explore Alternative Investments.
Mar 21, 2023

What is the best investment to beat inflation? ›

During inflationary periods, experts suggest making the most of your returns by investing in assets that have historically delivered returns that outpace the rate of inflation. Examples include diversified index funds, as well as carefully investing in things like gold, real estate, Series I savings bonds and TIPS.

What are the worst investments during inflation? ›

What Are the Worst Things to Invest in During Inflation? Some of the worst investments during high inflation are retail, technology, and durable goods because spending in these areas tends to drop.

What is the best currency to avoid inflation? ›

As an actual, tangible asset, gold tends to hold its value for the most part—unlike paper currencies like the dollar, which lose purchasing power when inflation is rampant.

What is the best hedge against inflation in 2024? ›

Precious metals ETFs, such as those that track the price of gold or silver, can be a potential hedge against inflation. For example, gold is seen as a safe-haven asset. During economic uncertainty or market downturns, investors often flock to gold, potentially driving up its price and the value of your ETF.

Is cash king during inflation? ›

Inflation: Inflation eats away at the purchasing power of cash. Because of that and the low yield of cash assets, cash steadily loses value. The time value of money: Because of inflation and other factors, cash is worth more now than it will be in the future.

How to invest cash during inflation? ›

Where to invest during high inflation
  1. Stocks. Stocks have historically outpaced inflation—annualized returns have averaged about 10% historically. ...
  2. Inflation-protected bonds. ...
  3. Real estate. ...
  4. Diversify your investments. ...
  5. Explore bond laddering or CD laddering.
Oct 6, 2023

Is a house a good hedge against inflation? ›

Factors that Make Real Estate a Strong Inflation Hedge:

Real estate stands as a robust inflation hedge due to several key factors. Its limited supply and consistent demand drive property values higher during inflationary periods. Rental income, which can increase with inflation, provides a steady cash flow.

What are the three investments one can make to beat inflation? ›

The bottom line

Investing in precious metals, like gold and silver, can protect your portfolio's value amid rising inflation. Moreover, real estate investments may give you a way to generate a regular income while you protect your portfolio from the dollar-devaluing impact of mounting inflation.

What is the best investment during inflation Warren Buffett? ›

Real estate is generally a “good investment” during times of inflation, according to Buffett. “They're the businesses that you buy once and then you don't have to keep making capital investments subsequently.

How to profit from inflation? ›

Less expensive tangible assets that do well during inflation include many types of commodities. Agricultural commodities like wheat, corn, soybeans, livestock and timber are among such commodities. Industrial metals like nickel, copper and steel also tend to do well during inflation.

Is investing in gold a good idea? ›

Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

Is gold really a good investment? ›

Gold is often considered a good investment for diversification, as it may be less correlated with other assets such as stocks or bonds.

Can investments keep up with inflation? ›

One of the most direct ways to protect against inflation is to invest in index-linked or inflation-protected government bonds – instruments where the payout is directly tied, or indexed, to the level of inflation and therefore keeping your spending power intact over time.

Which provides the greatest hedge against inflation? ›

Gold, Precious Metals, and Commodities

Precious metals such as gold have been historical favorites for hedging against inflation due to their scarcity, tangibility, and historically negative correlation to paper money. Since 1979, the purchasing power of the US Dollar has declined by 77%.

Is gold really a hedge against inflation? ›

Several factors influence gold prices, the most important being inflation and interest, which are linked. Gold has an inherently limited supply, which makes it an inflation hedge, but despite the commodity's reputation for being a safe-haven investment, gold is not risk-free.

What metals besides gold serve as a hedge against inflation? ›

Inflation hedge: Like gold, silver can serve as a hedge against inflation — which can be especially useful in this economy, in which we're facing persistent inflation. Historical value: Silver has a long history as a form of currency and wealth preservation.

What is the best currency to hedge against the dollar? ›

Experts suggest investing in currencies forecast to appreciate against the USD, such as the euro, the Japanese yen, and the Swiss franc. This diversification could help to reduce exposure to exchange rates and boost returns. Another strategy to consider is investing in non-US assets, such as stocks and bonds.


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