How to Invest During Inflation? | 6 Inflation-Proof Investments

Most people find it challenging to manage their personal finance, but it’s even more problematic during high inflation. Luckily, there are many ways in which you can improve your current financial situation, and we will represent them to you! Therefore, in today’s article, we will talk about:

  • What is inflation?
  • What are different inflation types?
  • How to secure your personal finance in times of inflation?
  • Where and how to invest during inflation?
  • Pros and cons of investing while inflation rises
  • Become financially independent

Keep reading this article to get answers to these questions!

Inflation: Understand the Basics

Many people find the return of inflation very worrying. The last time this happened, prices increased by 5% in just one year! 

With our banking system still healing from the Great Recession and with Biden calling it “transitory,” we’re not sure if these high levels will continue or whether they were an exception that won’t be seen again soon. 

In the USA, the inflation metric is the most commonly measured by changes in the Consumer Price Index (CPI), a weighted average of the prices of a hypothetical basket (of essentials) and services.

Price pressures in the USA

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What Is Inflation?

Generally speaking, inflation is an overall rise in prices in an economy over a specified period. For consumers, inflation means an increase in goods and services prices and the risk of a loss of purchasing power in case their income fails to keep up. 

According to the Federal Reserve, the stable and standard inflation interest rate is about 2%. But unfortunately, it’s not rare that economic shocks happen, and then inflation creeps into the double digits.

In our recent history, we had fluctuations in inflation. For example, in the 1970s and 1980s, prices increased up to 15%. After that, inflation dropped to standard.

Further, inflation rates fluctuated between 2% and 5% in the 2000s, while in the 2010s, inflation levitated between 0% and 2%. It shows us that prices have been surprisingly stable in the last decades than before the 2000s.

Unfortunately, inflation has made a big comeback. Many factors have advanced to the price increases, mainly supply chain disruptions caused by COVID-19. Another factor is the Russia-Ukraine war that influences prices and will continue as long as consumer demand persists. 

Commodity prices, which are sensitive to economic growth, make up an important part of inflation. For the last 12 months, the headline inflation rate clocked in at 5.4%. It is one of the highest rates in many years from the past.

According to the Bureau of Labor Statistics, the Consumer Price Index rose 8.6% annually by May 2022, the most significant increase in almost 40 years. That percentage rose to 9.1% in June. As inflation surges, the dollar isn’t stretching as far as usual.

Contrary, a decline in prices is called deflation. Insistent deflation affects the escalation of unemployment and undermines the financial system.

Neither inflation nor deflation is optimal for people in general. Both deviations are challenging for investors and consumers. A reason for that is the possibility of significant economic disruption. In addition, they often affect various asset classes in unpredictable ways.

rise in inflation in USA

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Types of Inflation

The following are the three main types of inflation:

  • Cost-push inflation

Cost-push inflation arises when production expenses increase for companies to make the same goods. Due to more significant expenses, market prices rise to follow the increased input cost.

  • Demand-pull inflation

Demand-pull inflation occurs in a situation when demand overcomes production power. So, prices increase because there is more interest for goods than the current supply can meet. 

  • Built-in inflation

Built-in inflation appears when workers request higher salaries to combat rising living costs. It can create a feedback effect for companies to raise prices continuously to meet the increasing labor cost.

types of inflation

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Correlation Between Inflation and Finances

Now when you understand the basics of inflation, it’s evident why managing your finances is more complex and risky in times when inflation rises.

How Does Inflation Influences Personal Finance?

Households with low incomes and retired persons with small budgets are the most affected by this problem. 

As time passes, the inflationary pressures are more severe, which can diminish your income’s purchasing power. For many people, it leaves them scrambling to cover rising housing and medical expenses, food prices, energy bills, etc. The results are devastating for your finances.

How to Protect Your Finances?

How can I protect my finance against inflation? you might ask. Luckily, you can take action to protect your finances and beat inflation. 

The classic and foundational approach is to manage a flexible budget. It means trying to decrease your monthly living costs during hard times temporarily. Many experts advise smart investing to hedge against inflation, which we’ll cover later.

Of course, we all have different fixed incomes and financial situations (mortgage/loans), so not everyone is able to maintain their budget. People that successfully keep track of it can indeed benefit from that. 

Financial difficulties are inevitable. However, you can prepare for them by making smart decisions that will allow your money to last longer and help protect the things necessary in life during tough times. 

In addition, managing spending habits within an appropriate budgeting framework ensures stability when cash flow decreases due to less fortunate circumstances such as job loss or other shock events that may lead us toward poverty.

Another more effective way to protect or build an investment portfolio is by investing in assets specially designed to hedge against rising inflation. These assets support your additional income and increase the value in the face of rising prices.

Where and How to Invest During Inflation?

We made a quick list of common investment vehicles for inflation hedges.

High-yield, Floating-rate Bank Loans

High-yield bank loans (HYBLs), also known as leveraged loans, are a standard and efficient way of inflation protection. Their primary role is to periodically reset interest rates to keep the step with regnant market rates, which are fully connected with inflation.

The corporations that deliver these credits have credit ratings below investment grade. That way, an individual should get a reason to pause if they’re a credit-focused investor. 

Long-term fixed-rate debt is more susceptible than short-term borrowings because the effect of inflation on future repayment values compounds over time.

Still, the corporations need to secure the loans, and they are generally required to pledge that they have adequate collateral to repay the loans. A pledge is a way to eliminate any concerns about creditworthiness. However, be aware that assets like HYBLs can illustrate equity-like volatility during economic uncertainty.

Precious Metals

Investing in precious metals is a frequent and accepted way to protect your assets during economic downturns. 

Raw materials such as gold, silver, and platinum have shown high levels of resiliency over long periods with inflation when other investments might fail in your worst-case scenario. Gold prices usually tend to coincide with inflation. With investment in gold, an individual has a better chance of strengthening a purchasing power on potential investment returns.

It also has some significant drawbacks. The biggest one is they do not yield any income. So, when interest rates rise, precious metals can fairly underperform other financial securities. The price of many essential goods and services is on the rise, which means that investors in these industries can expect good returns.

Due to this problem, some fee-based providers of precious metals advise people to time the market, moving into and out of precious metals as the landscape shifts. Don’t fall for this! It is genuinely poor advice and highly discouraged. Successfully timing the market is so rare and hard that it is questionable whether anyone has been able to do it.

Still, there is a more reasonable way to establish a strategic allocation of metals. It goes up to 10% in the long-term investment strategy. So, only long-term investors can benefit from it.

This humble allocation can support a source of strength during inflationary periods. This way also can improve the overall performance of your investment portfolio. 

If you think investing in precious metals is a way for you, you can do it in various ways. You can buy physical gold or other precious metals directly, but the storage expenses can be excessive. Instead, an individual can gain exposure indirectly by investing in diversified, metals-focused funds like the exchange-traded fund. 

Also, you don’t have to pick just one inflation hedge. Instead, you can diversify the inflation-protected securities in your portfolio construction.

Real Estate

Another popular way, historically speaking, for inflation hedges is commercial real estate (CRE). CRE involves any property owned and operated to generate economic value. It’s different from residential real estate, which is intended for living space. 

Nearly all CRE asset classes generate income by lease arrangements. Lease arrangements include homes, storage complexes, shopping centers, industrial facilities, apartment buildings, and office buildings. The protection ability for real estate investments against inflation originates from the fact that property values and monthly rents rise as well as inflation.

Thanks to the rise in property values and rents, owners of CRE can keep their properties’ real value and generate higher prices and incomes over time. Of course, it can vary because of many different factors. One of the most crucial aspects is the balance of supply and demand in the place of the property.

Further, beyond directly investing in real estate, it’s possible to make it through REITs (Real Estate Investment Trusts) or mutual funds that invest in REITs. REITs can provide a straightforward way for regular investors to diversify their portfolios and get real estate inflation hedging benefits.


One of the most effective ways of protection is the collection of publicly traded equities, also called stocks (or cheap stocks). This asset class allows investors to purchase a proportional ownership stake in virtually any publicly traded firm worldwide.

Generally, cyclical stocks move in tandem with the overall economy. Even better are investments in cyclical stocks that also have high growth potential.

On the one hand, it’s beneficial to have relatively high return potential and pricing power of these firms because they can quickly reinforce your portfolio’s real, long-term value. But on the other hand, people who want to invest in this must be prepared to withstand the short-term volatility that equities tend to exhibit.

I Bonds

Inflation bonds (I bonds) are an attractive option among investors. These I bonds earn monthly interest that combines an inflation’s fixed rate, adjusted twice a year. 

It’s advised to choose bonds or bond funds that are shorter-term over long-term bonds because they will be less affected if interest rates begin to rise quickly. Even though inflation bonds are a safe hedge against high inflation, they aren’t a panacea.

One of the biggest cons is a limit for the purchase of $10,000 per year. Additionally, some investors have problems with a lack of liquidity. Instead of making regular interest payments, inflation bonds only pay out when you sell them – which is possible only at least 12 months after purchase. 

Most experts agree that we should avoid individual stocks and exchange-traded funds because you can find a safer option.

Treasury Inflation-Protected Securities

Treasury inflation-protected securities or TIPS are marketable U.S. Treasury securities whose goal is to combat purchasing power erosion. More precisely, they’re bonds whose principal rises and falls along with consumer prices.

TIPS has the advantage of period inflation adjustments, a characteristic standard fixed-rate bonds lack. They pay interest twice a year at a fixed rate, which is applied to the adjusted principal. TIPS can yield more than conventional bonds if your goal is to diversify your portfolio to account for inflation during an inflationary environment.

diversifying investments

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Pros and Cons of Investing When Inflation

Every kind of investment hedge has pros and cons. 

The crucial benefit of investing while high inflation is preserving a portfolio’s value. It is also a way to keep your nest egg growing. In addition, it can lead you to diversify, which is always an option to consider. 

By spreading the risk between various holdings, people simultaneously beat inflation and also use it as an asset-growth strategy.

Here are the pros of investing:

  • Protect your portfolio worth
  • Manage income’s buying power
  • Diversify holdings

On the other side, there are cons as well:

  • The possibility for risk is in expansion
  • It can distract people from their long-term goals
  • In some classes, overweight portfolio.

Even though we explain to you the most used assets for inflation hudges, there are no guarantees. Sometimes they fail to work, but sometimes they save your roof over the head.

annual inflation rate across the world

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We think that there is a safe way to invest without risks! Continue reading to learn how you can easily protect your savings and make more money!

The Safest Way to Invest During Inflation

A whole life insurance policy is the best investment method during high inflation. 

Whole life insurance policies earn cash value through dividends and interest. The money the policy makes is liquid, and you can use it anytime you want. 

An incredible benefit is that your policy’s cash value continues to grow even when you take a policy loan against it. This feature ensures that every dollar of cash value works twice as hard to combat inflation. A whole life policy is the best asset because it’s not bringing less cash as inflation increases.

A graphical representation on how whole life insurance policy works

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That is not all! Whole life is the safest option because your returns are guaranteed. Every policy has the protection of a mutual insurance company that pledges a set interest rate at a minimum. 

Also, a whole life policy earns non-guaranteed returns depending on the insurance company’s performance. As a policy owner, you are entitled to reap the benefits of the company’s profitable year. 

Furthermore, you cannot forget that whole life is a kind of life insurance policy, meaning you are also taking care of your lifelong protection. You also don’t need financial experts taking care of it. You can do it on your own.

To conclude, money from a whole life policy grows to outpace inflation and provide your beneficiary with more security. Moreover, the money grows faster than in a savings account!

You can also plan your retirement since the money in whole life isn’t subjected to market downturns (like 401 (k) or IRA). And whole life policies support unique tax advantages that allow you to keep more of your wealth and further balance out the harmful effects of inflation.

Become Financially Independent

Infinite Banking is a concept that allows policyholders to use their whole life insurance policy as a personal bank. Infinite Banking lets people become their own bankers, capturing the interest that would otherwise be paid to a commercial bank.

Successful individuals and businesses have practiced this Infinite Banking Concept for many years. 

The first step is to purchase a whole life insurance policy from a reputable company. Then, the policyholder overfunds the policy, using it as collateral for loans. 

The Infinite Banking Concept allows people to become financially independent, secure their savings, and build more wealth! There will be no need for traditional banks anymore. And being financially free means that inflation won’t affect your lifestyle.

Whole life policy and Infinite Banking Concept working together is the best way to hedge against inflation. Thanks to Infinite Banking, people can have true financial freedom!

Building wealth

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Final Thoughts

The period of inflation can be challenging for everyone because of high prices, but don’t lose hope. 

There are many ways you can invest to hedge against inflation and try to ensure your financial stability. We showed you different inflation hedge options and their pros and cons. 

However, the best way to invest during inflation is in a whole life policy which will allow you to create your own bank and become financially independent.