Now is a good time to take a look at inflation stocks. Currently, inflation is pretty low. But it’s not going to stay that way forever… Especially with interest rates where they are. Plus, the Federal Reserve announced it would take a different approach in how it monitors inflation rates. The Fed stated it would let inflation run a little bit hotter than the standard 2% target. Only then would it start to hike interest rates to rebalance.
We may not be there yet, but that’s why now is a good time to prepare. You don’t wait to buy a fire extinguisher until your kitchen is on fire. And folks shouldn’t wait until their portfolio takes a hit to get ready.
When inflation comes, some investments will do better than others. Some might not be impacted at all. And others could be poised for a major downturn.
A Brief Overview
A simple generalization is that the transportation sector tends to do just fine amidst a rise in inflation. It can simply pass along higher costs. But it’s unlikely to see much of a boon from a rise in inflation. That makes this sector easy to look past for inflation stocks.
On the other hand, when inflation heats up airlines tend to take a hit. A surge in jet fuel prices can negatively impact their bottom line. And historically speaking, banks and insurance companies don’t fare too well when inflation rates rise. They both tend to be locked into lending and premium costs for extended periods of time. In turn, when inflation rises – and the value of the dollar decreases – both industries wind up missing out on potential profits.
Then on yet another hand, there are commodities. Think food suppliers, purveyors of industrial metals and energy here. These industries can scale down production when demand is low. But when inflation kicks in, that switch isn’t flipped as easily. Production takes time. And the laws of supply and demand dictate that until supply is ramped up, the supplier’s goods become more valuable. In turn, so too is the company. That makes these particularly interesting areas to look for inflation stocks.
Five Inflation Stocks to Prop Up Your Portfolio
Each of the following funds are designed to track the overall performance of certain sectors or industries. And each of those tracked have historically outperformed when inflation rises.
These funds also offer the advantage of not having to pick and choose individual companies. In any industry there can be big winners and some behind the curve. And it’s a lot easier (and safer) to reap the average between them than get lucky trying to pick just the right company.
- iShares S&P GSCI Commodity-Indexed Trust (NYSE: GSG)
- Global X Internet of Things ETF (Nasdaq: SNSR)
- Vanguard Real Estate ETF (NYSE: VNQ)
- Invesco DB Base Metals Fund (NYSE: DBB)
- SPDR Gold Trust (NYSE: GLD)
iShares S&P GSCI Commodity-Indexed Trust
This exchange traded fund (ETF) managed by BlackRock Fund Advisors invests in commodity markets. More specifically, it invests through derivatives including futures contracts. When the future price of commodities goes up, so does the value of this fund. This ETF tries to track the S&P GSCI Total Return Index by taking long positions in index futures. This makes it a no-brainer inflation stock to pick up when preparing for a rise in prices.
Global X Internet of Things ETF
Most utilities are fairly inflation-proof. And the internet is certainly included there. And that makes the Global X ETF pretty inflation-proof in its own right. But what makes this ETF interesting is that it benefits from broader adoption of the Internet of Things (IoT). As WiFi, 5G and fiber optics become more ubiquitous, so too does the number of things connected to them…
Whether society needs refrigerators and lightbulbs that connect to the internet doesn’t really matter. People are buying them. And the companies building semiconductors and sensors, applications for smart grids and smart homes, and various other integrated products are on the rise.
The future isn’t here yet. But when it does arrive, we’re going to have even more of the products we use every day connected to the internet. And those providing these products will only become more valuable. That makes this a sound investment as an inflation stock… But it is likely to perform well even before inflation rises.
Vanguard Real Estate ETF
When inflation rises, so does the price of property and rentals. That’s why real estate investment trusts (REITs) are an excellent way to stave off the effects of inflation on your portfolio. A REIT is basically a collection of real estate that pays dividends to its investors. And this ETF invests in REITs that purchase real estate property.
This fund is a diversified way to make a play on the real estate market – without the massive down payment. It also comes with a respectable 3.7% dividend yield. When inflation is on the rise, income-oriented stocks that pay dividends generally decline. But this type of investment is an exception. That’s another reason this inflation stock is so appealing.
Invesco DB Base Metals Fund
Tucked away in a specific corner of the commodities market are base metals. The like of copper, zinc and aluminum all tend to rise in value with inflation rises. And this ETF looks to capitalize from such a rise.
Like the iShares ETF above, this fund uses futures contracts to invest in base metals. And those contracts will become much more valuable when inflation is higher than expected. But those looking for a more direct play can also check out copper stocks with a lot of growth potential.
SPDR Gold Trust
Speaking of metals, one of the most common safe haven investments out there is gold. As our own stock trends expert Matthew Carr puts it, “Gold loves uncertainty. And right now, we’ve got plenty of it.”
When the markets are volatile, the value of gold increases as investors retreat to safety. When inflation rises, so too does the value of gold. Even Warren Buffett – who has a long history of dismissing gold as an investment – has come around. There are many ways to invest in gold. You can buy physical gold. You can try your luck with gold futures. There are plenty of pure-play gold stocks out there too. But gold ETFs offer broad exposure. And that makes this an excellent inflation stock to invest in to prepare for a decline in value of the dollar.
The Bottom Line on Inflation Stocks
These are just a sampling of the industries that can thrive amidst an increase in inflation. The healthcare industry also tends to experience growth when the value of the dollar decreases. Same goes for companies that provide building materials and technologies.
But the five investment opportunities listed above are in an excellent position. They can help safeguard your portfolio if the dollar decreases and maintain along the way until it does.
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