It’s no secret that across the United States right now we are experiencing a period of rapidly rising inflation. At this point, there doesn’t seem to be promising relief in sight, so investors are strategizing how to best protect their assets as a bear market sets in and signs of a recession draw near. 

When it comes to inflation’s impact on the stock market, there is historical evidence that stocks perform well during periods of high inflation, though hyperinflation still threatens to diminish the value of assets and decrease buying power. So, many investors want to learn how to hedge against hyperinflation and discover which moves they can make in the coming months to best protect their assets. If this sounds like you, you’re in the right place – that’s exactly what we’re going to cover in this article. Continue reading ahead as we discuss how to hedge against inflation. Let’s begin with some quick background information on this topic.

What Exactly Is “Hedging Against Inflation”?

What is a hedge against inflation, you ask?

It’s important to get on the same page about what hedging against inflation means – and what its limitations are as well.  If inflation is a period where the overall cost of goods and services is rising with buying power diminishing, then hedging against inflation is the risk management strategy investors employ to help offset these impacts in their portfolios. Now, with that said – is it really possible to learn how to hedge against inflation?

Can You Really Learn How To Hedge Against Hyper Inflation?

So knowing what a hedge against inflation is now, can investors really discover how to hedge against hyperinflation? The answer is yes, though it’s important to understand that there is a difference between standard inflation and hyperinflation.

While we typically experience normal levels of inflation each year, hyperinflation is a period where the price of goods is rapidly increasing. While there have never been periods of prolonged hyperinflation in the United States, it’s still worthwhile to recognize its damaging effects in the short term – and determine how investors can best protect themselves during these times. 

Why Learning How To Hedge Against Inflation Is So Important For Investors 

It’s important for investors to realize the impact that inflation has on their portfolios at any given time, especially during periods when inflation is rising rapidly. Not only can inflationary periods cause major price swings and volatility in the stock markets, but they also diminish the buying power of a given currency and can counteract portfolio gains. 

For example, if an investor’s portfolio realized 5% gains for the year but inflation was 6% during that time, they technically experienced a loss of 1%. Thus, investors need to find ways to hedge against inflation no matter the market conditions to retain the value of their assets. 

Many investors may have learned how to hedge cash against inflation. But, there are a number of additional ways to execute an inflation hedging strategy. These tactics can help you see portfolio gains aside from just preserving your initial capital. So – how else can investors hedge against inflation? Let’s take a look.

How To Hedge Against Inflation: 5 Ways You Can Minimize Risk

Ready to learn how to hedge against inflation – including what the best course of action is during periods of hyperinflation? It’s the moment you’ve been waiting for. We are going to go over the various strategies you can utilize. Continue reading as we describe some of the top ways that investors can fight inflation. 

Reallocate from Bonds to Stocks

Many experts agree that holding equities is the best way to outpace inflation. Particularly, when we look at the S&P 500 during periods of high inflation, the returns tend to show strong performance at these times. Of course, there are instances of stock market weakness during rising inflation, though trends seem to show otherwise in most cases. However, the bond market generally suffers greatly as inflation is on the rise.

In general, being invested in the stock market is one of the more common ways to make up for inflation during normal periods. This becomes especially true during times of rising inflation. Thus, you can set yourself up for success in less than favorable conditions by learning tactics such as value investing, how to invest during a recession, shorting stocks, or even shorting ETFs. Therefore, many investors choose to reallocate a portion of their portfolios to stocks from bonds as inflation rises. 

Diversify Internationally

Another great way investors can hedge against inflation through the stock market is to diversify their holdings internationally. Many times, the causes of inflation are domestic, which foreign countries are typically free from. Major countries, such as Australia, are all great markets for American investors to enter to diversify their holdings around the globe – especially as the value of the dollar crumbles here in the US.

While we are participating in an economy that is more globalized than ever before, it can still be valuable for investors to bet on international names during periods of high inflation. This will help to offset the potential losses experienced stateside. Whether through ETFs or individual holdings, American investors can utilize foreign stocks as a hedge against inflation. 

Utilize Real Estate

One asset that fares particularly well during inflationary periods is real estate. As price levels go up, so too do property values, which bodes well for real estate investors. Plus, there is always a demand for housing no matter the state of the economy, so it’s a good bet as we enter into recessionary times when other asset classes tend to become more volatile. 

An easy way for investors to increase their exposure to real estate is to purchase real estate ETFs on the stock market. REITs and real estate ETFs give investors the regular dividends that come from owning real estate while being more liquid than owning the physical property itself. 

Consider TIPS

While other types of bonds suffer from rising inflation, TIPS, or Treasury inflation-protected securities, are an exception. Thus, they are commonly used by investors in their inflation hedging strategies. Even though you can’t buy and sell them through the stock market, many investors still flock to them during periods of rising inflation. 

As the name would suggest, TIPS’ value is set to increase with the rise in inflation, which in addition to being backed by the U.S. government makes them a highly-secure investment as inflation rises. Even still, the long maturity date of TIPS keeps investors’ funds locked up for a long period of time, which is why some may not consider them in their inflation hedging strategies. 

How to Hedge Cash Against Inflation

Lastly, some investors may decide that their best course of action during inflationary periods is to sit on the sidelines with their cash. As we mentioned above, inflation can cause unpredictable swings in the stock market in the short-term, which may be intimidating to some investors. 

So, it’s common for investors to close out of their positions, hang on to the cash, and wait for a more favorable entry point once there’s a market correction and volatility has eased. This can be a good idea for investors who don’t have the proper tools or knowledge to execute a successful inflation hedging strategy, though they won’t have the exposure to see gains during this time from other inflation hedges. 

Quick Advice For Hedging Against Inflation 

Now that you have learned a number of the ways that investors hedge against inflation, let’s talk about some additional tips for successfully executing an inflation hedging strategy. Learning how to hedge against hyperinflation is only the first step, so you must take into account some of the following advice to best protect your assets as inflation increases. 

Be Realistic With Your Goals

When employing an inflation hedging strategy, the goal may not be to make huge returns like in more normal market conditions; rather, you’re aiming to preserve capital so you can compound your previous returns when the market becomes more favorable. 

Instead of holding on to all positions and having to climb out of a hole once there’s been a market correction, investors can learn a number of the inflation hedging strategies above, including how to hedge cash against inflation, that can help mitigate these losses during the meantime. 

Stay Ahead Of The Curve With Stock Forecasting Tools

We’ve already mentioned that hedging against inflation can be complex, especially without the proper tools and analysis to explore and evaluate market opportunities. So, let’s take a look at the #1 tool to stay profitable no matter the market conditions. 

You can get a stock forecasting tool to help uncover opportunities despite unfavorable overall market conditions. VectorVest gives investors a way to make money in the markets on autopilot. The platform’s pre-configured searches allow you to discover your next big move with ease and helps take the guesswork out of buying and selling stocks at the right moment. 

There’s always a way to make money in the stock market, investors just need to be more strategic with their trades. VectorVest can help you select which companies to buy and when, giving you the clarity and confidence to execute your strategies and make money in the markets no matter the economic conditions. Check it out today with a free stock analysis tool.

Parting Thoughts On How To Hedge Against Inflation

In the coming periods, you will continue to hear of recession fears and the impact of rising inflation. However, you should feel confident in utilizing an inflation hedging strategy to help protect the value of your assets and mitigate the downside risk that inflation may cause. Learning how to hedge cash against inflation is only one way to do so, but investors can discover other ways to make money during inflationary periods. If you want to learn more, check out our article on the best hedge against inflation.

When using the right tools, investors have the upper hand in preserving their portfolios. With access to software like VectorVest, investors can gain real-time updates and actionable insights that can help them make money in the markets at any time. 

Making informed decisions and being able to accurately time the market is an invaluable benefit from using VectorVest. So, investing in quality stock forecasting software can help investors stay profitable during these unpredictable times. What are you waiting for? Experience the difference by trading with VectorVest today – you’ll be glad you took a chance and invested in yourself!

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