9 Ways to Hedge Against Inflation with Investing

SingSaver team
Last updated Mar 24, 2022

While inflation is looking to get worse, it also creates an opportunity for investors to look harder for ways to invest in the economy for future gains. 

As if the world hasn’t had enough to deal with, from a pandemic that lasted longer than anyone would have thought, to a war between Russian and Ukraine. With the global economy still in recovery, consumers have been grappling with the rising costs of inflation which looks set to worsen.

With supply chain issues and generally slowed demand for services due to the pandemic, the prices of goods will continue to rise. And investors everywhere will continue to for ways to invest to hedge against inflation.

A good way for budding investors to dip their toes is start small and look for investments that appreciate over time.

Creating a passive income is every investor’s goal as it requires less output of labour, running cost, and time. Investing requires an understanding the market and the factors affecting capital appreciation and Return On Investment (ROI). A healthy percentage to aim for is an average of 7% going up for most businesses in the last 20 to 5 years.

As an investor, remember to exercise your due diligence by weighing the options available and consider your return on investment from the asset. The following are some ways you can beat inflation by investing, as you sit back and watch your assets make you money.


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1. Real Estate Investments Trusts (REITS) 

A real estate investment trust is a company that owns finances, and operates income-generating real estate. They invest in properties like commercial buildings, apartment buildings, medical facilities, and warehouses. They also trade in the stock exchange market. During inflation, the market prices go up, resulting in a high dividends payout.

Despite their low capital appreciation rate, REITs can offer a more consistent flow of income, particularly as the outlook for S-REITS starts to brighten. There are three types of these inflation protected investments.

  • Equity – They own and operate income-generating real estate properties.
  • Hybrid – Utilises equity and mortgage real estate investments trusts
  • Mortgage – Through loans and loans, they lend to real estate owners and developers.

2. Commodities 

Trading in raw material and agricultural commodities like crude oil, natural gas, gold and grain is one of the inflation investments. Most basic commodities are usually priced during inflation, which results in high raw materials prices. This means when investing in commodities you are guaranteed of inflation-protected investment.

That said, a slight change in demand and supply chain affects price margins. It makes investing in commodities a bit risky despite the high ROI.

3. Inflation-Indexed Bonds 

When you buy a bond, you act as a lender to the authority as an investor. Inflation-indexed bonds, unlike common bonds, offer interest higher than the inflation rate. The principal interest is subject to capital appreciation, coupon payments, and inflation rate.

Unlike conventional bonds that tend to offer lower ROI, inflation-indexed bonds have been cautioned during inflation. Thus, offering a better return on investment rate on your initial capital while covering the risk of losing your investment. Some local bonds that have gained investors’ interest include the Singapore Savings Bonds, among others.

4. Gold

When countries experience a decline in the value of their currency, they turn to gold and other currencies to trade. Yet, sometimes governments tend to withhold gold during inflation as it does not offer yields compared to other assets. It makes gold not the best inflation hedge as an investment option.

5. Bloomberg Aggregate Bond Index

Bloomberg Aggregate Bond Index measures the U.S. government, taxable, corporate, and municipal bonds portfolios and their risk exposures in the US market. Putting this as an investment requires you to invest funds that help improve the benchmarking processes of the index.

With an ROI of 3.51% over the last five years, it offers passive income on how to beat inflation but with very little capital appreciation.

6. 60-40 Stock/Bond Portfolio

A balanced formula of investing, the 60-40 stock bonds allocation is one of the oldest strategies investors have used to caution themselves against inflation. It has seen an average return on investment of 7.5% as of 2021.

Unfortunately, it underperforms due to the effects of compounding interest. As an investor, keep in mind that a multi-asset portfolio will offer you the best hedge against inflation. But, few returns are compared to a portfolio with a higher percentage in stocks.

7. S&P Stock Market

S&P stands for Standards and Poor’s 500 as an abbreviation for tracking the 500 most publicly traded companies in the U.S. It is a model favouring those with little capital, like communication and technology services. Barring a few exceptions, it is one of the best investments during inflation.

8. Real Estate Income

Real estate property value goes high during inflation, which leads to an increase in prices. The income made from the rented property also increases. Hence, the investor in real estate gets a high return on investment. It makes rental income top the list among the inflation-protected investments.

9. Leveraged Loans

A leveraged loan is a company. A financial institution with existing high debts or low credit scores takes a loan for boosting its financial status. The investor giving the loan makes a schedule for loan repayments with the borrower. They are expensive as the interest is high due to the high risk of default. They are in the category of Collateralized Loan Obligations (CLOs).

Leveraged loans have high returns yields, thus classified among the best investments for inflation.

Inflation may have a few effects on purchasing power, but this is not meant to scare investors away. Doing some market research will significantly help the investor decide which options are most suitable. Consulting an independent financial advisor can also be helpful with your investments.

You know what experts say about the best time to start investing? Compare the best brokerages to start or complement your investing journey now.

SingSaver team March 24, 2022 86349