With Inflation Still High, Here Are 4 Things to Do to Protect Yourself

Inflation is still a problem that’s worth keeping tabs on in the new year, especially if new policies (tariffs?) get put into place that could affect pricing on a wide range of goods and services. Undoubtedly, inflation is always working against our dollar, even when it’s at a “normal” rate in the 2-3% range.

If it happens to accelerate again, I am confident that the Fed will react accordingly. But even “transitory” bursts of inflation can land a rather nasty left hook on your retirement nest egg, making it essential to have the right investments in place to ride out any prolonged period of proliferating price increases.

In this piece, we’ll go over a few ways investors can defend themselves from the threat of inflation. And the risk profile for investments brought up in this piece will range from conservative (those who just want to preserve purchasing power) to more aggressive (those who want to preserve and grow to get some miles ahead of inflation). So, whatever your risk tolerance is, there’s bound to be a way to protect your hard-earned dollars from the lingering threat that is inflation.

Here’s a tip: consider investing in TIPS.

In prior pieces, I praised TIPS (Treasury Inflation-Protected Securities) as fine options for conservative investors (think older retirees) looking for an extremely low-risk way to protect their wealth from the threat of inflation. As inflation inches higher, so too does interest on TIPS you hold.

And while many may perceive TIPS to be a risk-free way to invest, there are, as always, opportunity costs (of not investing in stocks, for example) of hanging onto such a lower-risk, lower-return type of security. Also, if deflation hits, TIPS could really drag their feet. 

All considered, I view TIPS as an essential diversifier to any conservative portfolio aimed at improving protection against inflation. Even for more risk-on investors, a small chunk of TIPS can make sense for the sake of added diversification in a climate where inflation could stand to heat up.

Seek out high-quality dividends.

If you’re heavily invested in stocks, you probably already have some “invisible” protection from inflation. When it comes to the shares of businesses that can increase prices on goods or services they sell without suffering from falling demand as a consequence, you could have a pretty decent inflation defense on your hands. And if shares of this business pay growing dividends, all the better.

In terms of dividend payers, I’d look for cheap stocks that have already demonstrated the ability to perform through inflationary surges. Which companies have shown enviable pricing power in the last three years? These are businesses worth adding to your radar for the coming months. 

In short, don’t discount the inflation-fighting power of a dividend stock, especially the ones with a stretch of increasing payouts year after year.

Real estate investment trust (REIT) distributions that can be trusted

Real estate investment trusts (REITs) aren’t typical investments that come to mind when one thinks of forming a defense against rising inflation. However, like with dividend-paying firms, some REITs can raise rents in response to inflationary spikes. Also, the value of their property assets may also stand to appreciate in an inflationary environment.

Perhaps the biggest attraction to REITs, however, is their distribution. Some of them can be quite towering! For investors enticed by such yields, careful attention to payout ratios is key. Nobody wants to be dealt a dividend cut in the middle of a tough time for the economy!

Alternative assets worth exploring

Finally, alternative assets are worth looking into. Though, the degree of inflation protection they’ll provide stands to vary. Gold is an asset that first comes to mind. Silver and Bitcoin are other assets that may also stand to appreciate if inflation moves higher again. As always, though, check in with an advisor before you allocate too big a chunk of your portfolio to precious metals or Bitcoin. 

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