When economic conditions get challenging, many people look for ways to protect the value of their portfolio. Currently, interest in inflation-proof stocks is on the rise. While inflation is cooling, it’s still relatively high. As a result, it’s wise to see if adjustments to your portfolio could be beneficial. With that in mind, here’s a look at inflation-proof stocks, including if they’re really inflation-proof and six investments that are worth considering while inflation remains part of the equation.
Are There Really Inflation-Proof Stocks?
Technically, no stock is guaranteed to rise in value at any time. However, inflation-proof stocks are potentially better bets during periods of rising prices. Generally, they include products or services that don’t see declines in purchases or interest even if the cost of living is increasing. As a result, they’re less subject to losses during challenging economic times.
In some cases, inflation-proof stocks may even see stock gains when certain economic conditions occur. People change their spending habits when they need to tighten their budgets, and that can make some products or services more attractive to the masses than they were previously.
Essentially, inflation-proof stocks are simply those that are most likely to benefit from straining budgets and changing spending habits. Just keep in mind that you should carefully investigate any new investment before moving forward. That way, you can ensure it seems suitably solid and aligns with your investment strategy, particularly when it comes to risk levels and growth potential.
6 Inflation-Proof Stocks to Consider
1. Energy
When you’re looking for investments that can resist the impact of inflation, the energy sector is often a solid choice. Primarily, this is because using energy isn’t something people can avoid, regardless of how prices change. For example, rising gas prices can strain budgets, but most individuals who need to travel to work, schools, or stores can do little to avoid fueling up their vehicles. As a result, energy companies are often shielded from notable changes in demand, barring unprecedented situations, such as the COVID-19 lockdowns.
The energy sector also continues to evolve. New developments are poised to revolutionize the industry, and companies at the forefront can potentially see gains, regardless of inflation, if the right innovations take shape.
2. Income-Producing Stocks
Broadly referred to as income-producing stocks, investments that offer profit-based distributions, like dividend stocks and REITs, aren’t bad ideas during periods of inflation. Even if the associated stock’s growth is limited, there are still earnings generated from the provided dividends. Often, that income remains relatively consistent, too, which can be a relief when the broader market is fluctuating.
One benefit here is that there are ETFs and similar funds that offer a degree of diversification right out of the gate. With dividend ETFs, you get the benefit of dividends while also tapping into a range of investments with a single stock purchase, making it a strong option for those new to investing.
3. Fertilizer Companies
One of the impacts of the Russian invasion of Ukraine is that fertilizer prices are on the rise since demand outweighs supply. As a result, investing in fertilizer companies with reliable practices and earnings could be worth considering this year if inflation remains relevant and the Russia-Ukraine war continues.
Since this largely involves selecting stocks from individual companies, it’s critical to research each option carefully to identify strengths and weaknesses. Additionally, mitigate some of the risks by having a diversified portfolio, making it easier to weather potential ups and downs.
4. Commodities
In many cases, commodities are popular during periods of inflation. They typically outperform the rest of the market when inflation is high, and many investors use them as hedges when there’s economic uncertainty.
Generally, commodities work well for the same reason that energy investments can make sense. Commodities don’t typically see significant declines in demand even if prices rise. However, they don’t always perform well during periods of economic growth or prosperity, so keep that in mind if you’re trying to make a long-term plan.
5. Consumer Staples
Like commodities and energy, consumer staples are potentially worth considering during periods of high inflation because they don’t see dramatic dips in demand. Certain products are broadly regarded as essential to nearly every household, so they remain on shopping lists regardless of how prices change.
In the consumer staples landscape, you’ll see a range of companies known for producing a variety of widely-used household or food items products, as well as retail giants that sell them at competitive prices. Before you buy, make sure to research a stock’s performance and the company’s current position, allowing you to assess the investment’s potential before committing.
6. Pharmaceuticals
While pharmaceuticals are potentially impacted by inflation, the industry typically weathers the storm better than many alternatives. Often, the materials they use don’t see the same price changes as consumers experience at the store, so operational expenses remain relatively stable.
Additionally, medications aren’t always products consumers are willing to go without, which can prevent lulls in purchases. Similarly, many have healthcare benefits that offset much of the cost, preventing a significant change in their out-of-pocket spending. As a result, demand is usually preserved to a reasonable degree.
As with all investments, it’s critical to do some research before investing in pharmaceutical companies. That way, you can find one that aligns with your strategy and has reasonable potential for ongoing growth should inflation remain an issue.
Can you think of any other functionally inflation-proof stocks investors should consider? Do you believe that there’s no such thing as a genuinely inflation-proof stock? Share your thoughts in the comments below.
Read More:
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