There's a chance that inflation may rise at the top of next year. To prep, Nicole shares four inflation-proof investments to help your portfolio.
Full Episode
I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Well, it looks like we're not out of the inflation woods just yet. If you are wondering why, please go back and listen to my episode on Trump's plan to impact inflation and interest rates. I've linked it in the show notes.
In that episode, I give you four reasons why we may see inflation rise at the beginning of the year. And I know this might feel like bummer news. We think of inflation as a force that tends to eat away at our net worth. But we can actually use inflation to grow our wealth in four ways. Today, I'm going to tell you how.
But before we get there, let's recap what inflation does to different types of investments. Let's start with stocks. The stock market can be a mixed bag in inflationary times. Companies with strong pricing power, like consumer staples, for example, which are things like household goods and food, tend to perform better during inflationary times.
But high growth companies often take a hit because rising interest rates make future earnings less valuable. There's really no blanket rule across the board for stocks. It's pretty industry dependent. Traditional bonds are more straightforward. Inflation erodes the value of fixed income returns, so traditional bonds tend to underperform in inflationary environments. But then there are the hedges.
Gold has long been considered a hedge against inflation, which I will get to in just a sec. The more dubious case studies are real estate and crypto. Property values and rental income often keep pace with or even outpace inflation. So in some cases, real estate can exist as an inflation hedge, although that is not always the case.
And the real estate market can boom or pop due to a bunch of other factors beyond inflation. On the even more volatile side, we have cryptocurrency. Crypto bros love to argue that the legacy coins like Bitcoin and Ethereum can act as a hedge against inflation due to their limited supply. At the time I'm recording this, Bitcoin is over $91,000 a pop, which is a huge win for the crypto bros.
I will give them that. But let's not forget the 52 week low for crypto is less than half of that at $35,600 ish. Again, crypto is super volatile and it's not really a hedge against anything. Historically, it hasn't been a hedge against inflation or the dollar, and it hasn't really been a store of value either. It moves more like GameStop stock.
Its value reflects the value that people think or sometimes want it to have. So what are actually good hedges against inflation? Here are my top four. Number one, serious I bonds. Yes, long time listeners know that I was obsessed with these when inflation peaked at 9% a few years ago. But these bonds are my favorite for a reason.
They're tied to inflation and keep up with rising prices, which means your returns go up even when inflation does. They're currently earning about 3.1%, but if inflation rises, so do I bond yields. iBonds adjust twice a year, so they'll adapt if inflation picks up.
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