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Here's where experts recommend you should put your money during an inflation surge

Select spoke with financial experts about how consumers can protect their cash as prices increase.

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If you've noticed the flight you're looking to book for an upcoming vacation is more expensive than last year or that your grocery bill has gone up even though you're buying the same amount of food, you're witnessing the results of the country's latest inflation surge.

"What I tell my clients is that gas isn't getting better, your money is just getting worse," Ivory Johnson, CFP and founder of Delancey Wealth Management, tells Select.

While the rise in prices of goods and services continues, the more painful part for consumers is we don't know exactly how long it will last or just how we should react financially.

For the everyday consumer, increased prices may mean limiting any splurge spending to avoid a big hit to your wallet. But for those who invest, you're likely more concerned about your money losing value in the market.

Select spoke to a handful of experts to get their best advice on ways you can protect your money from rising inflation. Here are eight places to stash your money right now.

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TIPS stands for Treasury Inflation-Protected Securities. While the term may seem like a mouthful, TIPS are actually quite simple to understand.

TIPS are government bonds that mirror the rise and fall of inflation. So, when inflation goes up, the interest rate paid does, too. And when deflation occurs, interest rates fall.

"Adding TIPS can help balance out your fixed income or bond portfolio since they're indexed to inflation," says Diahann Lassus, a CFP and managing principal of Peapack Private Wealth Management.

Because TIPS are backed by the U.S. federal government, they're one of the safest investments for your money and an effective way to diversify your investments while also supplementing future retirement income.

Because the price of TIPS moves up in line with the Consumer Price Index (a measure of consumer prices paid over time), it helps protect against these unexpected spikes in inflation, adds Amy Arnott, a portfolio strategist at Morningstar. "TIPS are by far the best inflation hedge for the average investor," she tells Select.

TIPS bonds pay interest twice a year at a fixed rate, and they are issued in 5-, 10- and 30-year maturities. At maturity, investors are paid the adjusted principal or original principal, whichever is greater.

2. Cash

Cash is often overlooked as an inflation hedge, says Arnott.

"While cash isn't a growth asset, it will usually keep up with inflation in nominal terms if inflation is accompanied by rising short-term interest rates," she adds.

Anna N'Jie-Konte, a CFP and founder of Dare to Dream Financial Planning, agrees. With the pandemic proving just how unpredictable the economy can be, N'Jie-Konte suggests always keeping some cash in a high-yield savings account, money market account or CD.

"Having too much cash is an underestimated risk for individuals' finances," she adds. N'Jie-Konte recommends setting aside six to nine months for single-income households and six months of cash for two-income households.

Lassus advises maintaining your short-term CDs until we have a better understanding of what longer-term inflation may look like.

Our top-rated high-yield savings, money market accounts and CDs

Good news: We already did the research on the top accounts offering higher-than-average interest rates for your cash savings.

For best high-yield savings accounts, consider the Marcus by Goldman Sachs High Yield Online Savings. It offers no fees whatsoever, easy mobile access and is the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached.

For best money market accounts, consider the Ally Bank Money Market Account. It gives users access to both checks and a debit card (good for ATM access), has 24/7, highly rated customer service, an easy-to-use mobile app and offers out-of-network ATM reimbursements.

For best CDs, first consider how long you want to keep your money tied up in one. Select ranked the top choices for three-month (BrioDirect High-Rate CD), six-month (iGObanking High-Yield iGOcd®), one-year (CFG Community Bank CD), three-year (First National Bank of America CD) and five-year (Ally Bank High Yield CD) CD terms.

3. Short-term bonds

Keeping your money in short-term bonds is a similar strategy to maintaining cash in a CD or savings account. Your money is safe and accessible.

And if rising inflation leads to higher interest rates, short-term bonds are more resilient whereas long-term bonds will suffer losses. For this reason, it's best to stick with short- to intermediate-term bonds and avoid anything long-term focused, suggests Lassus.

"Make sure your bonds or bond funds are shorter term since they will be affected less if interest rates begin to rise quickly," she says.

"Investors can also reinvest short-term bonds at higher interest rates as bonds mature," Arnott adds.

4. Stocks

"Stocks can be good as a long-term inflation hedge but can suffer in the short term if inflation spikes," Arnott says. Consider market-tracking index funds that have performed well over the long term, even though they have dropped in recent months.

If you're new to the investing world, it's easier than ever to get started. To do so, you'll need to open an account through a brokerage or trading platform. Select reviewed more than a dozen online brokers that offer zero-commission trading to find the best options for new investors. The top brokerages for free stock trading have the widest range of investment options, user-friendly technology, quality customer support and educational resources.

Here are our top six brokerages for free stock trading:

  1. TD Ameritrade
  2. Ally Invest
  3. E*TRADE
  4. Vanguard
  5. Charles Schwab
  6. Fidelity

You may also want to consider robo-advisors like Betterment and Wealthfront if you want a more hands-off approach to your portfolio.

5. Real estate

Real estate traditionally does well during periods of higher inflation, as the value of a property can increase. This means your landlord can charge you more for rent, which in turn increases their income so it is on pace with the rising inflation.

Beyond home ownership, real estate investments can be made through REITs (also known as Real Estate Investment Trusts) or through mutual funds that invest in REITs.

The post-pandemic era, however, may change how real estate responds to higher inflation. "Fundamentals are somewhat in question because of the long-term effects of Covid," Arnott says. Demand for commercial real estate, such as office and retail spaces, is still in limbo as more companies are adopting remote work or hybrid models. Mortgage rates have also been rising rapidly recently.

6. Gold

While gold doesn't always protect against rising inflation in the short term, it tends to keep up over the long term (meaning decades).

7. Commodities

Prices for raw materials like oil, metals and agricultural products usually increase along with inflation, so they can be a good hedge against it.

Investors, however, should note that commodities can also be extremely risky, Arnott adds. The prices for commodities depends largely on supply and demand, which can be highly unpredictable. This makes them a risky investment, on top of investors taking on leverage: The chance of rewards are high, but so are the risk of losses.

8. Cryptocurrency

"Bitcoin is often described as 'digital gold' and theoretically should protect against inflation because of limited supply. But the jury is still out on whether it will be a good inflation hedge over the long term," Arnott says.

And as a warning to investors, Arnott points to Bitcoin's recent volatility. If anything, she says it emphasizes the fact that Bitcoin can be difficult to incorporate into your diversified portfolio.

There are a number of apps now that make it easy for everyday investors to invest in crypto, including traditional financial service providers such as Cash App, PayPal, Robinhood and SoFi.

Bottom line

Investors have options to protect themselves against inflation, but the safest bet is through TIPS. Otherwise, use an inflation surge period as a good time to review your overall investment performance and allocation to make sure it aligns with your goals.

"Don't make dramatic changes based on current inflation or market conditions since most of us are still long-term investors," Lassus says.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Goldman Sachs Bank USA is a Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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