With inflation on the loose, we’ve turned to experts for four strategies to help you beat rising prices, at least in your portfolio. As it turns out, you don’t need to abandon stocks to hedge against inflation entirely.

Instead, you can just shift some funds from the sectors you hold now over to the ones that are likely to benefit from an inflationary environment.

1. Stocks in Companies Providing Basic Supplies

One area to shelter your portfolio from inflation is in companies providing basic supplies. They’re always in demand, which makes it possible for suppliers to raise prices in step with inflation.

“Inflation is at near-term historic highs and investors are looking for the best ways to protect from it,” notes Sankar Sharma, Investing Authority and the Founder of RiskRewardReturn.com. “Where there is a problem there is a solution. Investors can invest in the consumer staples, energy, utilities, agricultural inputs and fertilizer stocks to help.”

Investors should be aware however, that companies providing basic supplies may be a longer-term play.

“Leadership areas over the longer-term, which we would suggest focusing on, include the energy sector, driven by oil and natural gas, basic resources, packaging, healthcare services, consumer staples, and technology hardware,” writes Forbes Contributor, Randy Watts. “While (certain technical indicators) do suggest increasing risk exposure to equities, at the present time…move cautiously.”

2. Dividend Stocks with a Track Record of Increasing Dividends

Dividend stocks aren’t likely to keep up with inflation, at least on a day-to-day basis. For example, a stock paying a dividend of 5% isn’t keeping up with an inflation rate of 8+%. But the main takeaway is that dividend stocks do have a history of outpacing inflation over the long-term. And while they do react to fluctuations in the stock market, they tend to weather declines much better than the overall market.

“Invest in stocks that qualify as ‘perpetual dividend raisers’ – stocks that raise their dividends by a meaningful amount every year,” recommends Marc Lichtenfeld, Chief Income Strategist and CMT at The Oxford Club. “That way the income you’re collecting is at least maintaining or even increasing your buying power, which is difficult to achieve with most investments during high inflation periods. Their cash flows are typically growing and fairly predictable so they outperform the market over the long term.”

“Look at stocks like AbbVie

, which has boosted its dividend by an average of nearly 18% per year for the past five years,” Lichtenfeld continues, “or Texas Instruments

which has raised its dividend every year for the past 18 years at an annual rate of more than 20% over the last decade.”

If you’re a beginner investor and not comfortable picking individual stocks that meet the increasing dividend criteria, you can always invest in dividend stock funds, especially those that invest in the so-called Dividend Aristocrats. That’s a group of more than 60 companies selected from the S&P 500 that have track records of increasing their dividends for at least the past 25 years.

For example, ProShares S&P 500 Dividend Aristocrat ETF (NOBL

) has provided a return of 3.84% in the 12 months ending April 30, and an average of 12.42% per year since the fund was launched in October, 2013. And though the fund has turned in a negative performance so far in 2022 (-6.29%), it has nonetheless outperformed the S&P 500, which has produced a year-to-date return of -17.14%.

“Inflation is one of the variables that is always top of mind, but it’s front and center right now; one of my favorite types of investing in this environment is Dividend Growth,” advises Jonathan Bednar, CFP® at WhatTheWealth.com. “This strategy focuses on owning companies with a history of raising their dividend, many of which for several decades and many market cycles. Does this help protect from the high and immediate inflation concerns? No, the market will continue to ebb and flow based on current events, which are out of our control. What is in our control is our strategy and our consistency.”


3. Commodity Stocks to the Rescue

Commodities may be the favorite response to inflation. Not only is there a track record of commodities providing favorable returns during times of inflation, but we’re witnessing just such an outcome right now.

“During the very long inflation push that occurred between 2001 and 2007, inflation slowly rose from 1.0% to 6.0%,” reports KC Mathews, Executive Vice President & Chief Investment Officer at UMB Bank. “During this long inflationary cycle, commodities rose at a 13% annualized rate, more than double that of the S&P 500 while protecting one from inflation.”

Energy is a prime example of the performance of commodities in an inflationary environment. The iShares U.S. Oil & Gas Exploration & Production ETF (IEO

) has returned 78.44% for the one-year period ended May 20.

If you’re looking for a more diversified approach to commodities, the Invesco DB Commodity Index Tracking Fund (DBC

) holds positions in energy, metals, and agricultural commodities. The fund has returned 54.2% for the one-year period ended May 20.

Just be aware that commodity returns can swing in the opposite direction once inflation cools, or if rising interest rates begin to reduce consumption.

4. I Series Savings Bonds are Paying Nearly 10%!

I Series Savings Bonds may be a way to protect at least a small corner of your portfolio from inflation using a bond component. Commonly known as “I Bonds”, they’re issued by the U.S. Treasury, making them one of the safest investments available. But they’re also one of the very best ways to protect your money from inflation. And they do it with very little downside risk.

“For I Bonds issued after May 1, 2022 the interest rate is an eye opening 9.62%,” reports Tom Diem, CFP®, ChFC at Diem Wealth Management. “This yield resets every 6 months and is tied to US inflation. While these are 5-year bonds, one can liquidate I Bonds after one year with a penalty equal to the previous 3 months interest. This scenario with a liquidation at one year should net the investor over 5% interest in one of the safest investments around.”

Diem further advises that I Bonds can be purchased direct from the US Treasury or you can direct a tax refund to buy I Bonds up to $5,000. Total purchases are limited to $10,000 per person per calendar year.

“First introduced in 1998, I bonds are issued by the U.S. government,” explains Forbes Contributor, Rob Berger. “Investors purchase I bonds directly from the government via the TreasuryDirect.gov website…I bonds are designed to protect savers from the ravages of inflation. They accomplish this by adjusting the interest rate twice a year (May and November) based on changes in the CPI. Two factors determine the interest rate on an I bond: A Fixed Rate and an Inflation Rate. Combining these two rates gives us what is known as the Composite Rate.”

I Bonds are available through Treasury Direct in denominations of $25 or higher if purchased electronically, and $50, $100, $200, $500, $1,000, and $5,000 for paper bonds. They earned interest for up to 30 years or whenever you cash them in, whichever comes first. There is no early redemption penalty if the bonds are held for at least five years. And if inflation continues to rise, so will the rate of return on the I Bonds.

“In light of current inflation rates, I have advised investors to consider adding an I Bond component to their portfolio,” advises Anthony Montenegro, founder of The Blackmont Group. “If inflation remains rangebound, this year investors may well earn into the double digits. I Bonds make a valuable portfolio contribution, earning a competitive interest rate as a conservative position, making them an appropriate asset for any investor during seasons of higher inflation.”

Bottom Line

There’s no guarantee that these or any other inflation fighting investment strategies will work. Inflation is true variable; it can rise and fall, making it difficult to adjust along the way. But since it’s one of the primary factors affecting investments today, it’s worth making some adjustments to your portfolio to better weather the storm.

Choose one or more of the above strategies to add to your portfolio. It may not protect your entire portfolio from the current wave of inflation, but it should minimize the damage.


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