Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Rising prices have become an unavoidable fact of life for most Americans. You hear about inflation in the news, you see it at the grocery store—and hopefully you’ve thought about how inflation is impacting your investments.
“Inflation is the silent wealth killer,” says Chris Berkel, investment advisor and founder of AXIS Financial in Edmond, Okla. “Inflation has the potential to erode the purchasing power of an investor’s portfolio, even if they maintain positive returns year-over-year.”
Your long-term investments will need to earn at least 3.7%, the average U.S. inflation rate going back to 1960, to keep from losing ground. Here’s a look at investments that have stood the test of time in helping investors combat inflation.
Beat Inflation by Investing in Gold
Gold is the oldest hedge against inflation. The yellow metal has seen an average annual gain of 9.48% over the 20 years between September 2001 and September 2021. Over the same period, inflation averaged 2.4%, netting investors a 7.08% rate of return.
Just don’t go dumping your life’s savings into gold, as there are some other factors you’ll need to understand about investing in gold.
If you invest in physical gold, there are additional costs in storing and insuring coins and bullion, which eat into your returns. Investing in gold-focused mutual funds and exchange-traded funds (ETFs) can vastly reduce these costs, but it’s still important to remember that the price of gold is highly volatile, especially over the short term.
You’ll also need to understand whether your fund of choice aims to track the price of gold or rather gold mining companies. Both can be decent ways to play the gold market, but their returns may vary considerably.
Invest in Stocks to Beat Inflation
Investing in a diversified portfolio of stocks is an excellent way to fend off inflation. From September 2001 to September 2021, the S&P 500—a key benchmark for U.S. stocks—generated an average return of around 9.5% (with dividends reinvested). After accounting for inflation, you’re still looking at about 7% average annual returns.
Even with today’s substantial price gains, you’d still have soundly trounced rising prices: From November 2020 to November 2021, inflation rose almost 5%. During the same period, the S&P 500 jumped over 32%, with dividends reinvested.
There’s no real need to resort to picking individual stocks, which can be research intensive and incredibly risky, to benefit from this kind of historic growth. Get started by choosing an S&P 500 index fund or S&P 500 ETF, which track the index’…….