How To Invest During Inflation – Best Investment Strategies Reviewed

Last Updated November 8th 2022
15 Min Read

This guide explores how to invest during inflation and economic recession. It introduces you to the 10 best investments during high inflation, which range from passive to actively managed investments that appeal to both beginner and pro investors.

If anything, the rising global inflation has proved to be anything but transitory. A growing number of economists and forecasters continue painting gloomy projections about the future of the global economy. A few expect the ongoing multi-year bear market to potentially break into a full-blown market recession as soon as 2023.

In this guide, we will be teaching you how to get ready for a market recession and high inflation by making the best investment decisions early.

Read on to learn how to invest during high inflation.

Top 10 Investments During High Inflation

Our analysts reviewed multiple legit investments and ultimately settled on the following as the 10 best investments during inflation. 

  • Cryptocurrencies    Overall Best Investment During High Inflation
  • Bonds and TIPs   Best Low-Risk Investment To Beat Inflation
  • Precious Metals    Beginner-Friendly Investments During Inflation
  • Peer-to-peer Lending    Beat Inflation By Lending Money At Higher Interest
  • Index Funds   Beat Inflation By Investing In A Diversified Range Of Companies
  • Stocks   Invest in Large-Cao And Growth Stocks
  • Real Estate   Earn Higher Dividends And Interest On REITs
  • Floating Rate Loans   Top Cash Investment During High Inflation
  • NFTs   Earn Outsized Gains By Investing In Digital Art
  • Copy Trading/Smart Portfolios   Best Passive Investment To Beat Inflation

 

Below, we discuss these investments in detail. We tell you why they are the best to make during high inflation and their projected outlook for the future. We will also tell you how to find the right investment and share general investment tips.

A Detailed Review Of The 10 Best Investment Strategies During High Inflation

During periods of high inflation, any investor’s primary concern is how to preserve the value of their capital. They are looking for investments whose net returns are higher than the inflation rate. And in this guide, we introduce you to 10 such investments. 

Let us review all the best investments you need to make during high inflation. 

1. Cryptocurrencies – Overall Best Investment During High Inflation

Cryptocurrencies top our list of the best investment during inflation because they are massively lucrative. In the last 10 years, for example, cryptocurrencies outperformed every other asset class. The rate of value gain for the majority of these cryptos will also outpace even the highest inflation rates, making them an excellent store of value.

But this isn’t the only reason why we believe cryptocurrencies to be the best investment during inflation. Others include the resilience of the digital asset. And by resilience, we mean that, unlike most other financial instruments, cryptocurrencies have proved their ability to survive and rebound quickly from even the most devastating crashes.

At the time of writing, for instance, an aggressive interest rate hike in the US has sent crypto prices crashing. This, plus the market contraction that dominated the crypto markets throughout 2022, has seen the market shed more than 75% of its peak value. But, unlike most other assets, cryptocurrencies have a faster rebound rate.

We also feature cryptocurrencies here because they don’t succumb to inflationary pressures. They aren’t as reactive to the same inflationary pressures of fiat currencies, making them exceptional hedges against inflation.

Importantly, we consider cryptocurrencies to be one of the best investments during high inflation because it presents you with multiple high-interest investing options. These range from crypto investing, crypto trading, crypto staking, liquidity farming, and even mining pools. All these attract relatively high-interest rates that will outrun possible inflation rates.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

2. Bonds and TIPS – Best Low-Risk Investment to Beat Inflation

We include treasury bonds – specifically the Treasury Inflation Protected Securities (TIPS) - among the best investments during inflation because of two key factors. First, their inflation protection feature ensures that your investment maintains its real value – regardless of the inflation rate.

This is made possible by the fact that when inflation rises, the federal banks raise the interest rate for the bonds in relation to the inflation. This goes a long way in helping preserve the true value of your capital investment.

We also include them here because they are one of the safest, low-risk, and beginner-friendly investments during inflation. Unlike most other investments on this list that require regular monitoring, risk management, and rebalancing, TIPS doesn’t call for active management.

 

3. Precious metals – Beginner-Friendly Investments during Inflation

Precious metals have been used as a safe haven during high inflation for ages. Some, like Gold and Silver, are even considered inflation-proof assets because they are able to maintain their real value in the face of even the most devastating economic crisis.

In fact, some precious metals – like Gold – have proved their indirect correlation with both the US Dollar and the stock markets. It rises when the stock markets and the USD are losing value - and this explains its feature in our list of best investments during inflation.

But we also feature them here because they are one of the few assets whose value cannot go beyond zero. Printing too much money can lead to high inflation that leaves a currency near-valueless, as happened in Zimbabwe and Venezuela. Companies, on the other hand, can collapse or face bankruptcy and have their shares drop to zero.

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4. Peer-to-peer lending – Beat Inflation by Lending Money at Higher Interest

Peer-to-Peer lending makes it to our list of the best investments during inflation because of its ability to yield higher inflation rate returns. Virtually all the most popular P2P lending platforms, for instance, have their lowest interest rate on loans capped well above the federal funds rate. The three most popular peer lending companies - Prosper, Lending Club, and Upstart -have set the interest rate for their loans between 5% and 36%. 

Such high-interest rates make P2P lending better than most other cash-based investments and savings schemes. By allowing you to stipulate the loan interest, you can choose a rate that helps your investment maintain its real value and also make extra cash in the process. 

Most of the P2P lending platforms also maintain straightforward client onboarding and investing processes. This makes it a beginner-friendly investment option. Not forgetting that peer-to-peer lending also falls within the low-risk investment category.  

 

5. Stocks – Invest in Large-Cap and Growth Stocks

Stocks have also proven great hedges against inflation. The fact that they are less volatile and unpredictable than such other asset classes as cryptocurrencies make them better investments during inflation. The trick to picking the best stock during inflation lies in identifying a ‘too big to fail’ large-cap company or other equally high-growth and highly reputable businesses and investing in their stock.

Seek out a company that consistently posts profits even in the harshest economic time or one with a proven history of fast rebounds after a volatile crash. Examples of these include the evergreen Bank of America stock or such others as Tesla, Apple, Amazon, or Netflix.

By rebounding fast after a market meltdown, these stocks help restore the integrity of your investment. And if they can continue recording exemplary performance during high inflation, they become an extra income stream. Some companies will even pay dividends regardless of the prevailing economic conditions if they have sufficient reserves and revenues continue trickling in.

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6. Real Estate – Earn Higher Dividends and Interest on REITs

Real estate is almost always negatively correlated to inflation. As inflation and interest rates rise, mortgages rise and become unaffordable to many shrinking the demand for real estate, which brings down property values.

Pro investors understand this dip as the best time to invest in real estate because property prices always go up. In fact, the real estate industry has sustained an overall uptrend of more than a century.

We must, however, observe that for the longest time, real estate was a preserve of institutional and deep-pocketed investors. There also were limited ways of making money in this industry outside of flipping houses and collecting rent. Today, however, technology has revolutionized the industry paving the way for such popular and all-encompassing investment options as REITs. 

REITs are investment trusts that pool funds from many retail inventors and invest in the real estate industry. It has become an increasingly popular investment option because it lets anyone invest in real estate for as low as $100. It is also popular because it provides double income – rental income in the form of dividends and appreciation in investment value as a result of the value gain of the property. 

 

7. Index Funds – Beat Inflation by Investing In a Diversified Range of Companies 

Index Funds track portfolios and are composed of many a wide range of stocks. These are then sold on popular stock exchanges or mutual funds. They are as effective as stocks and among the best investments during high inflation. 

Like stocks, a good number of index funds have proved their ability to survive even the worst inflation and continue gaining value. The rest will also post swift rebounds as soon as inflation cools down and the economy starts recovering. This proves index funds’ ability to conserve your capital, making them one of the best investments during inflation. 

But unlike stocks, index funds are more diversified. The S&P 500 index, for instance, covers the 500 most valuable stocks in the US, while the FTSE 100 index tracks the performance of the 100 most valuable companies in the UK. Such diversification makes the fund more tolerant to such market shocks as inflation. Funds are, therefore, not as impacted by inflation as individual stocks.

 

8. Floating Rate Loans – Top Cash Investment During High Inflation

Floating-rate loans refer to any form of credit that is advanced to another party with no fixed interest rate. This could be a mortgage, peer-to-peer credit, bond, and any other form of debt whose interest rate is subject to change in line with the changing market conditions. 

Such a loan has a base rate, also known as a reference rate, but its actual interest rate will vary from time to time - adjusted in line with inflation or market rates. 

Floating-rate debt makes it to our list of the best investments during high inflation because the adjustable rates make capital conservation possible. When lending out cash at a floating rate, you get to set the interest rate for your debt/investment - increasing it as inflation rises, and vice versa. 

 

9. NFTs – Earn Outsized Gains by Investing In Digital Art  

Non-Fungible Tokens, commonly referred to as NFTs, are digital art created and hosted on a particular blockchain. They shot to prominence in 2021 with the launch and popularization of such projects as BAYC (Bored Ape Yacht Club) and MAYC (Mutant Ape Yacht Club). More projects have since launched, sparking the NFT-craze, which has seen the value of some of these crypto art projects rally by unprecedented margins. BAYC has, for instance, rallied by more than 600000%. 

We consider them the best investments to beat inflation because, like cryptocurrencies, they have proved their resilience. This they achieved by sustaining an overall price uptrend since launch. They were also among the first to rebound when the crypto market started recovering after the mid-2021 market crash. 

We also added NFTs to our basket of the best investments during high inflation because of their sustainability. This is evidenced by the level of developments taking place in the NFT space and the embrace that this new asset class has received from the crypto community.

Today, a growing number of on-chain protocols, especially metaverse and play-to-earn programs, are embracing NFTs. Off-chain, major brands and celebrities are also launching their own NFT projects - and this trend is expected to continue in the foreseeable future. 

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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

10. Copy Trading/Smart Portfolios – Best Passive Investment to Beat Inflation

Copy trading involves copying the trade strategies of highly successful traders and investors and replicating them in your trading account. Some of the factors that make it massively popular include the fact that it is wholly passive, massively lucrative when done right, and allows for portfolio diversification. 

You do not need trading or investing experience to start copy trading. The majority of copy trading platforms - like eToro – have oversimplified the copy trading process to accommodate beginners. Here, the majority of vetted popular investors have consistently earned double-digit interest in their copiers. On others like the MT4, the most copied strategy has earned investors more than 8000% in the four years it has been around. 

These copy-trading gains have consistently outpaced inflation rates. This makes it one of the best investments during high inflation because it not only helps conserve but also helps grow your investment. 

We also list it here because it allows for diversification. You can copy trade virtually all assets on the supported trading platforms. On eToro, for instance, you can copy trade stocks, cryptocurrencies, ETFs, Index funds, Commodities, and forex. The multi-asset trading platform will even let you copy smart portfolios - expertly created and rebalanced by top investors.

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What Is Inflation?

Inflation refers to the general increase in the price of goods and services over a period of time in an economy. It can also be used to mean the fall or decline in the purchasing power of a national currency. This implies that a unit of currency can only buy fewer goods than previously did.

The inflation rate is determined by the consumer price index (CPI) for urban consumers. And to get the CPI, economists compare the price of a basket of commodities used in virtually all urban households – without adjusting for seasonality.

In 2021, for instance, the inflation rate in the US was 4.70%. This says that the US Dollar’s purchasing power declined by this 4.70%, and household consumer goods increased by this a similar margin.

How To Find The Best Investments To Beat Inflation

The trick to investing during inflation lies in identifying a lowly priced investment with the potential of blowing up when the economy starts recovering. And there currently are numerous such investments today. But how do you find the one that aligns with your investing goals the most?

Here are a few factors that you ought to consider when choosing the best investments during inflation:

Resilience: You will want to only invest in an asset that has a proven history of solid performance during economic turmoil. And if it plateaus or dips as a result of inflation, it should be able to recover fast as soon as the economy starts recuperating.

High-interest rates: If you are looking to beat runaway inflation and maintain the real value of your capital, you will want to go after investments whose ROI is higher than the inflation rate.

Diversification: To cushion your capital against market shocks, avoid concentrating it all on a single asset. Instead, embrace diversified investments like Index funds or go after multiple investments.

Tips For Investing During High Inflation – For Beginners

If you are to invest right during high inflation, make the most out of such investments and thrive ducting inflation-induced economic turmoil, here are a few investing tips that you need to take into account:

Understand your investing goal: Your choice of the best investment during high inflation should be influenced by your investing goals. For starters, ask yourself if you are looking to simply preserve or aggressively grow your capital.

Avoid holding cash: Liquid cash loses value in proportion to the inflation rate during high inflation. We, therefore, advise against holding cash and recommend converting it into investments whose returns outpace the inflation rate.

Embrace dollar cost averaging: The value of most investments will be highly volatile during high inflation. To maximize your chances of lowering the buy-in price, we recommend using the dollar-cost averaging investment strategy.

Diversify and rebalance regularly: You also need to understand that it is not enough to invest in a diversified portfolio. Given the volatile nature of most investments during this period, you need to constantly monitor and rebalance this portfolio.

Understand your risk tolerance level: Of the 10 investments that we have discussed above, your choice will ultimately be determined by your risk tolerance level. Beginners and the risk-averse are encouraged to go for low-risk investments like TIPS, while the rest with a higher risk appetite can take up riskier investments like cryptocurrencies and NFTs. 

Conclusion – How To Invest During High Inflation

High inflation in an economy is characterized by an increase in the price of consumer goods and a decline in the value of a country’s currency. When this happens, most central banks increase interest rates. This often results in a drop in value for some assets - like real estate - and a rally for others - such as essential commodities like Oil.

Rising inflation, therefore, presents you with multiple investment opportunities. And in this post, we have introduced you to what we consider the 10 best investments during inflation. These include beginner-friendly and relatively low-risk investments like copy trading and precious metals, as well as high-risk, high-reward investments like cryptocurrencies, stocks, and NFTs.

We have also looked at some of the factors that you need to consider when identifying the best investment to beat inflation. But even more importantly, we have shared tips on how to invest during inflation. To get started, understand your risk tolerance level and investing goal, go through this list again and invest in the asset that appeals most to you.

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FAQs On How To Invest During High Inflation

What are the best investments during high inflation? 

Cryptocurrencies have to be the overall best investment during high inflation because of their proven resilience and overall uptrending price action. Note, however, that they are a preserve of the risk-tolerant investor due to their untamed volatility. 

Is it safe to invest during inflation? 

Yes, it is okay to invest during inflation. In fact, you are advised to avoid keeping liquid cash saved in a bank during periods of high inflation as it would only be losing its value/purchasing power. Instead, invest in assets whose value gain outpaces the inflation rate.

Can you make money when investing during inflation? 

Yes, there are multiple investments whose value growth will outpace the current inflation rate, making them profitable assets to hold during an inflation-induced market crisis. We have even covered what we consider the 10 best assets to buy in the above how-to-invest during inflation guide.

How long will the current inflation last? 

No one can accurately tell when the current inflation will die down, especially because many of its causes remain unsolved. Two of the biggest are the rising gas prices occasioned by the ongoing Russia-Ukraine conflict and the oversupply of money occasioned by uncontrolled printing soon after the Covid-19 pandemic hit.

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