Inflation-Resistant Investments Compared

Financial planners and investment advisors often recommend diversifying with inflation-resistant assets — but which is ideal? Let’s dig in…

Inflation is a complex subject, but its effect is easy to see. Over time, the same amount of money buys less. A $20 bill in 2020 buys the same amount of goods and services as $13.37 bought in 2000.

Regardless of the causes of inflation, this erosion of buying power is of crucial importance to anyone saving for the future. You must consider not only how much money you have now, but how much of its buying power will be silently consumed by inflation in the years ahead.

Financial planners and investment advisors often recommend a number of investments as “hedges” (protection) against inflation. These so-called hedges typically do one or more of the following:

  1. Their market value is adjusted to compensate for inflation
  2. Their growth historically matches or outperforms inflation
  3. Their intrinsic value simply isn’t denominated in dollars, so their prices tend to rise in lock-step with inflation

Here’s a list of the investments most often recommended for their inflation-resistant characteristics:

Table Of Contents

2) Series I savings bonds
3) Bond index fund
4) REITs

5) Inflation-protected annuity
6) Dividend-paying stocks
7) Commodities basket
8) Gold ETF
9) Physical gold

We evaluate the effectiveness of inflation-resistant assets, along with their pros and cons, and provide an overall rating from 1 (poor inflation resistant investment) to 5 (optimal inflation resistant investment).

Treasury Inflation-Protected Securities (TIPS)

You might not have known it, but the U.S. government offers its own type of inflation-resistant investment. Known as Treasury inflation-protected securities (TIPS), these bonds issued by the U.S. Treasury distributes fixed-income payments twice per year. What makes them unique is that the balance of principal on these bonds adjusts for inflation before calculating the interest payment. This means TIPS factor inflation into their interest payment, and the asset’s balance at maturity will at least maintain its purchasing power compared to inflation.

How can you purchase TIPS? Buying them directly can be cumbersome, though you can purchase them directly from the Treasury at Luckily, there are easier ways to get exposure to TIPS with index funds like the BlackRock Inflation-Protected Bond Portfolio (IBRIX) or Vanguard Inflation-Protected Securities Fund (VIPSX). Alternatively, you can get exposure to TIPS in a liquid market with TIPS-specific ETFs like Schwab US TIPS ETF (SCHP) and iShares 0-5 Year TIPS Bond ETF (STIP).


  • Highly liquid when purchased via ETFs or index funds
  • Pay a nominal interest rate above CPI rate to counter inflation
  • Extremely low volatility


  • CPI rate calculations may understate your personal inflation rate and not truly cover the loss of purchasing power over time
  • Expense ratios of index funds and ETFs (even if minuscule) take a toll on your return
  • Inside a mutual fund or ETF, after-inflation interest rates can be negative
  • Counterparty default risk from the US government — although this is highly unlikely

Final Rating: 3/5

TIPS are specially designed to be inflation resistant, and they do this job just fine. Yet, they still aren’t perfect. ETFs and index funds come with fees that counteract the benefits of these assets, while TIPS themselves are less-assets if owned outright. At their best, TIPS can help you stave off inflation, but nothing more.

Series I Savings Bonds

Like TIPS, Series I bonds are issued directly by the U.S. government and purchased via The difference with Series I bonds is that they have a fixed interest rate and a variable interest rate based on inflation. The variable inflation rate on Series I bonds resets every six months, altering the interest paid on the bonds themselves. At the worst, these bonds guarantee a doubled face-value payout when held to their 30-year maturity (the equivalent of a 2.4% APY).

However, I bonds are issued in the owner’s name and cannot be resold. Therefore these investments are comparatively illiquid. Additionally, these low-risk, low-reward investments generally offer interest comparable to other fixed-income investment options like CDs. (Here we discuss Series I savings bonds in greater detail.)


  • Pays CPI interest rate; guaranteed to double in face value at maturity (30 years)
  • Redeemable before maturity (three-month interest penalty if held less than five years, no penalty afterward)
  • Zero volatility


  • CPI rate calculations may understate your personal inflation rate
  • Somewhat cumbersome to transact
  • No secondary market on which to trade, making them less liquid
  • [Improbable] Counterparty default risk from U.S. government

Final Rating: 4/5

Series I Savings Bonds are government-guaranteed protection against inflation. They will continue to grow in value over the 30 years until maturity and can even be redeemed well before then if desired. Sure, you can’t purchase these easily through online brokers, but if you’re willing to take the time to buy these bonds from the US Treasury directly, they will protect your wealth from inflation for many years.

Bond Index Fund

Individual bonds come with their own risks. These include missed interest payments or defaults by the issuer. But packaging bonds together into an index fund dramatically mitigates the risk of individual bonds while at the same time providing you with regular interest rate payments on your investment.

Bond index funds come in all shapes and sizes. There are total market bond funds like the Fidelity US Bond Index Fund (FXNAX), funds that focus on municipal bonds like Fidelity Municipal Bond Index Fund (FMBIX), or corporate bond funds like SPDR Portfolio Corporate Bond ETF (SPBO). There are specialty bond funds that focus on more specific economic niches, like high-yield debt from risky companies, but for the purposes of this comparison we’re discussing broad index funds holding investment-grade and higher debt.


  • Highly liquid
  • Low volatility
  • Readily available through traditional brokers
  • Pays a variable interest rate
  • Redeemable at any time without penalties


  • Returns are variable and not guaranteed to beat inflation (example: at time of writing, the Vanguard total bond market index fund VBMFX yields 1.94% vs. CPI at 5.4%)
  • Expense ratios, especially for actively managed funds, can be high
  • Capital gains taxes may play a role, especially in an actively managed fund
  • Counterparty default risk from individual issuers (reduced by holding a broad index)
  • Operational risk from the institution that maintains the fund

Final Rating: 2/5

While potentially appealing as investments, the variable interest rates of bond index funds aren’t so good at consistently holding up against inflation. Yes, the liquidity and availability of such funds make them potentially appealing, and some types of bonds tend to offer significant diversification benefits. Ultimately, they are not solid investments from an inflation perspective.

Real Estate Investment Trusts (REITs)

Real estate investment trusts (REITs) take ownership of real estate and funnel the income generated from these properties back to shareholders. In fact, by law, REITs must pay 90% of their taxable income back to investors as dividends. These investments are traded on most major stock exchanges like the New York Stock Exchange, making them easy to buy and sell at any time.

REITs are a good option for investors who don’t have the capital to invest in real estate directly. Real estate beats inflation quite consistently, and REITs are an excellent way for investors to allocate smaller amounts of money to real estate. In the chart below, you can see how REITs have significantly outperformed both stocks and bonds during a period of high inflation from 1974-1980.

REIT and inflation

Though a number of REITs exist, we’re evaluating REIT index funds and ETFs for the purposes of this comparison.


  • Highly liquid investment
  • Can be easily purchased through most major brokers or financial institutions
  • A steady income stream from dividends which is typically higher than fixed-income assets
  • Redeemable at any time without penalties


  • Not tied to inflation in any way (example: at time of writing, the Vanguard real estate index Admiral fund VGSLX yields 3.22% vs. CPI at 5.4%)
  • Expense ratios, especially for actively managed funds, can be high
  • Tax liabilities may be higher than other assets, especially for actively managed funds
  • More volatile than fixed-income assets, but still less volatile than the stock market as a whole (at least over the last 40 years)
  • Operational risk from the institution that maintains the fund and from individual companies owned by the fund

Final Rating: 2.5/5

The high liquidity and easy accessibility of REITs make them a solid investment for some. Also, owners of real estate historically beat inflation in the long run. However, unlike other inflation-resistant options, REITs are more volatile and subject to economic downturns, leading to a loss of value.

Inflation-protected annuity (IPA)

If you want a guaranteed return at or above inflation through retirement, an inflation-protected annuity (IPA) — sometimes referred to as an inflation-indexed annuity — might be right for you. As the name states, IPAs guarantee a return that matches inflation and often exceeds it. These annuities are most often used as a tool for retirement as the annuity contract guarantees a steady income stream through retirement until the end of the policy holder’s life.

These policies are non-transferable and cannot be traded, meaning you are locked into an IPA once you purchase the policy. (Learn more at What is an annuity?)


  • May offer early withdrawal, spousal and beneficiary provisions, depending on the terms of the contract
  • Payments are adjusted for inflation
  • Typically, you can choose a one-time lump sum payout or a series of payments monthly, quarterly, or annually
  • Generally offers a guaranteed minimum return


  • Inflation rate calculations may understate your personal inflation rate
  • Illiquid and non-transferrable
  • Annuities generally are an incredibly complex product
  • Requires a very high initial investment
  • Fees can be costly (initial and annual fees, plus “surrender fee” for early withdrawal)
  • Counterparty default risk from the issuer

Final Rating: 1/5

The drawbacks of an inflation-protected annuity simply don’t justify its use as an inflation hedge. Put together, high fees, low liquidity, and counterparty risk all add up to an investment that is just too likely to underperform against inflation. Sure, you can receive a regular return payment through this annuity, but you will also find this in other assets like savings bonds and TIPS. Do yourself a favor and stay away from inflation-protected annuities to combat inflation. You’re better off drinking an IPA than investing in one.

Dividend-Paying Stocks

While the stock market is more volatile than other investments discussed above, more stable, income-producing companies can make solid investments to combat inflation. Companies that have been paying investors dividends for decades are generally more stable and predictable than the rest of the market. Dividend-paying stocks include household names like General Electric (GE), Coca-Cola (KO), and Procter & Gamble (PG), to name a few. These stocks can also be purchased within mutual funds or ETFs if desired. Examples include the Vanguard Dividend Appreciation index fund (VIG) and ProShares S&P 500 Dividend Aristocrats index (NOBL).


  • Unlike many of the other investments listed here, stocks provide the potential for capital appreciation
  • Readily available from brokers
  • Historically, dividend-paying stocks have delivered positive after-inflation returns during low-inflation periods


  • High volatility
  • Dividends aren’t guaranteed, and companies may cut or suspend dividends at any time, for any reason, especially in harsh economic conditions
  • Not tied to inflation in any tangible way (example: at time of writing, NOBL yields 1.94% vs. CPI inflation at 5.4%)
  • Value stocks (the most common dividend-paying category) decline in price when inflation rises and lag behind growth stocks during bull markets
  • Historically, these stocks have delivered negative after-inflation returns during high inflation periods
  • Increased tax exposure if not purchased in a tax-advantaged retirement account
  • ETFs and mutual funds can have high fees

Final Rating: 1.5/5

It’s not that we don’t see the value in dividend-paying stocks; it’s that for an inflation hedge, these assets are just too unpredictable. Even companies considered “blue chip” and highly reliable can see their prices oscillate significantly over time. While a great stream of income, dividend payments are often altered based on the underlying business performance, making them unpredictable for the future. In addition, despite the possibility of capital appreciation, stocks tend to produce less than stellar returns during periods of high inflation. If you want to invest in dividend-paying stocks, do so with other capital that you allocate for such purposes.

Commodities fund

Commodities such as precious metals and crops often benefit from rising inflation, but in an unusual way. Commodities have intrinsic value and are traded on the open market. When the buying power of a dollar goes down, that dollar buys less — and therefore, the price to buy a commodity goes up. This makes a good hedge against future inflation on their own. However, buying a basket of commodities together through an ETF or other fund helps to reduce the risk of purchasing a single commodity.

A well-diversified basket of commodities has proven to hold up well over time against inflation. As you can see in the chart below, the Bloomberg Commodity Index traded directly with inflation. Just don’t expect these assets to be stable, as commodities prices fluctuate greatly depending on economic conditions and other factors.

commodities fund

(Note we aren’t evaluating commodity-producing companies for this purpose; only funds and ETFs that hold a number of commodities and futures.)


  • One of the very few asset classes that benefit from rising inflation
  • A “basket” representing multiple commodities diversifies against risk in any one commodity
  • Commodities ETFs — like that of the S&P GSCI (Goldman Sachs Commodity Index) — are readily available at brokerages


  • One of the most volatile asset classes
  • Higher risk than most other equity investments
  • Not directly indexed to inflation (so there’s a risk of a correlation breakdown — for example, over the past 30 years, the correlation between commodity prices and inflation has declined)
  • May suffer long periods of underperformance (7 of the ten years from 2011-2020 had negative returns) correlated with low inflation periods
  • Counterparty risk from the fund issuer
  • Expense ratios can be high

Final Rating: 2/5

At first glance, commodities are great investments to preserve savings from inflation. They are correlated well with inflation, and commodity funds can diversify investment risk. However, commodities are still subject to high volatility and suffer from periods of underperforming other assets considerably. This makes them a significant risk for an inflation hedge.

Gold ETF

Gold has always been very resistant to inflation. Over centuries, gold has proven itself as an asset in which to store value. Institutions know this, and know that gold has investor appeal. This led to the birth of gold ETFs — like SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) — which claim to provide the same benefits as buying gold outright, without the hassle. Yes, you will have to pay fees on these holdings, but a single call to your broker gives you access to the premier store-of-value asset to combat inflation.


  • ETFs are highly liquid
  • ETFs are readily available from brokerages
  • Depending on the specific fund, regular audits may occur to ensure actual, physical gold holdings
  • Over long periods, price movements negatively correlate with the stock market
  • Like commodities, gold’s price rises when the measuring stick used (the dollar) shrinks from inflation


  • Short-term price movements may be correlated with stock market movements (when investors panic and sell everything, they sell gold, too)
  • May suffer periods of underperformance
  • Counterparty risk from the ETF issuer
  • Expense ratios can be high, leading to lower returns

Final Rating: 3.5/5

Gold is a great asset to combat inflation, and an ETF isn’t the worst way to invest in gold. The liquidity and accessibility of gold ETFs make them an attractive option for many investors, especially those new to investing. Yet, this does come with unnecessary fees and counterparty risk from the fund issuer. Furthermore, depending on the fund, your ETF’s entire holdings might be based on options contracts rather than tangible, physical gold.

All of this makes gold ETFs a good option for some (especially banks, hedge funds and other large institutions) but not necessarily the best option as an inflation resistant investment.

Physical gold

gold american eagle coin

The last item on our list might be the most inflation-resistant. We have already talked about how gold is an ideal commodity to act as an inflation hedge, and there is no better way to take part in this asset than to own it directly.

By owning physical gold, you take ownership over the precious metal. You, therefore, don’t have to be concerned about the security of a bank’s storage facilities or the high fees associated with purchasing a gold ETF. There is always a market for physical gold, so buying and selling the commodity doesn’t have to be complicated.

The primary reason physical gold isn’t in more savers’ financial plans is they simply don’t know it’s an option.


  • Highly liquid
  • Readily available
  • Gold itself has intrinsic value and is a globally recognized store of value
  • Physical possession and private ownership
  • For some types of physical gold (proof and numismatic coins), there are opportunities for capital appreciation
  • May enjoy periods of overperformance based on demand, industrial use, mining production, etc.
  • Over long periods, price movements are negatively correlated with the stock market and positively correlated with inflation


  • Not directly indexed to inflation
  • Short-term price movements may correlate with stock market movements (when investors panic and sell everything, they sell gold, too)
  • May suffer periods of underperformance correlated with low inflation periods
  • Storage and insurance costs

Final Rating: 5/5

There’s a reason physical gold has remained the gold standard for inflation-resistant investments over the decades. By privately owning the precious metal, you can control your wealth in a universally accepted commodity as a store of value. Over the long haul, gold is one of the only investments that reliably resists inflation, has zero counterparty risk, and can insulate your savings from a variety of bad economic conditions beyond inflation.