Morningstar Says These Investments Can Help During Inflation

Though the inflation rate has slowed in the past six months, there is no denying that Americans are still living in an inflationary environment. This impacts people day-to-day – when they go to the grocery store and consider taking out a second mortgage to buy a box of cereal, for instance – but it also has more nuanced impacts, such as on retirement savings. Investing is always difficult, but figuring out which investments to make during a period of high inflation can be particularly challenging. Asset management firm Morningstar, though, has laid out some solid options for investors looking to hedge their portfolios against inflation.

For more help with managing your portfolio in the times of high inflation, consider working with a financial advisor.

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Inflation Basics

Inflation is an economic condition where a country’s currency is not as valuable as it used to be – which means that goods and services cost more. If your income doesn’t keep up with the rate of inflation, you’re effectively making less money because the cash you do have doesn’t go as far at the store.

There are many forces that can cause inflation, including an expansion of a nation’s money supply, a fast growing economy and exchange-rate fluctuations.

The inflation rate has been going up in the United States since the pandemic, peaking at 9.1% growth year-over-year in June 2022.

The Best Investments During High Inflation

Investing during periods of high inflation can be difficult – if your return does not outpace inflation you could be left with less purchasing power even if you are technically making money. Morningstar notes the following as strong investments for an inflationary environment:

I Bonds. I Bonds can be used to directly hedge against inflation. The yield is currently 6.89%. You can generally only purchase $10,000 each year, so your ability to use this investment is limited, but can still be part of an effective portfolio.
Treasury Inflation-Protected Securities. TIPS also offer an easy hedge against inflation, as the bonds that support them adjust with inflation. The yield is generally just around 2%, but you aren’t limited to a small purchase amount.
Commodities funds. These are mutual funds that invest in commodities. Commodities are sensitive to economic growth, so the price is more likely than other investments to keep in line with inflation.

Inflation is high right now – though not as high as it has been in recent months. While this may make investing difficult, there are places you can put your money where you can protect your portfolio from being dragged down.

Investment Tips

A financial advisor can help you navigate through a difficult period. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s investment calculator to get a sense of what an investment you make could be worth down the line.

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