Everyone’s concerned about inflation these days, but for good reason. Inflation can significantly decrease the value of your investment portfolio, depending on the allocation type. An inflation hedge is done purposefully to protect your portfolio’s value from decreasing. Luckily, there are several alternative investments to help shield the negative impacts of inflation.
Here are eight alternative investments to consider adding to your portfolio to hedge against inflation:
1. Real Estate
There are multiple types of real estate investors can consider to hedge against inflation, including single and multi-family, as well as commercial. Commercial real estate refers to investing in office spaces, apartment buildings, warehouses, retail space, industrial properties, and more. However, investing in commercial real estate typically requires a large amount of capital. Real estate funds are an option for those looking to invest without the massive capital commitment.
As the population increases, so does the demand for and dependence on energy. The high demand for energy, categorically oil, yet limited availability consequently leads to an increase in energy prices.
Other energy investments to consider include geothermal energy, hydroelectric energy, wind energy, and more.
A commodity is an economic good, such as food and metals. Food is a basic need; Hence its demand will always exist. During inflation, food is one of the priority commodities people will buy. But due to limited availability, expect prices to rise. The high demand and short supply of food make food products suitable for hedging against inflation.
It’s no secret there’s an increasing interest in investing in digital assets. Cryptocurrency is among the best performing investments in previous years, and is considered a potential hedge against inflation. This is because its value can rise while traditional currency loses its value.
Crypto’s rise is not over yet either, and is expected to gain even more popularity for years to come.
5. Private Lending
Private lending or private credit is a form of lending where debts are not traded in public. Private lending is helpful during inflation when the interest rates increase. During inflation, private credit is less volatile compared to public lending.
High-net-worth investors can take advantage of private credit through private equity funds.
6. Hedge Funds
A hedge fund is an alternative investment that uses collective funds to purchase securities or other assets. Hedge funds are limited to high-net-worth investors. The limitation is because hedge funds are exempted from the restrictions of public mutual funds.
The main goal of a hedge fund is to generate high returns for the investor at the minimum risk. Hedge fund performance is not correlated to the stock market.
7. Fine Art
Fine art is not the most popular investment choice for most, as it can require lots of maintenance, storage, and space. However, the value of fine art increases with time, even during inflationary periods. Not to mention, it’s an investment that serves as a beautiful addition to your home, too, and can be passed down for generations to come.
8. Online Funding Platforms
There are plenty of online funding platforms that allow investors to invest in all of the above asset classes, at the click-of-a-button, at lower costs or in fractional shares.
Two examples of online funding platforms include Fundrise and Yieldstreet. Yieldstreet is an online alternative platform that allows investors to invest in several asset classes at fractional prices. Any investor – accredited and non-accredited – can invest via Yieldstreet. However, the platform, along with most others, does have a minimum investment requirement.
The bottom line
High-net-worth investors need to hedge against inflation to protect the value of their portfolio from declining. Whether you’re investing in small amounts of cryptocurrency, or millions of dollars worth of private equity, it’s necessary to take the steps to protect yourself from stock market decline during inflationary periods. To learn more about managing your alternative investments, check out our free platform and get started today.