How to Beat Inflation – 14 Strategies for Growing and Preserving Wealth

Inflation affects all of us, it erodes the value of your money. When prices go up, your purchasing power goes down. Inflation can be even more of a problem when wages are stagnant. As inflation erodes your purchasing power, it becomes necessary to protect yourself. Some people preserve their capital with inflation-protected securities. Others look for stock market gains to help overcome inflation’s effects. It’s also possible to start a business, cultivate passive income, and buy items with a long shelf life at today’s prices to reduce their average costs.

If inflation speeds up again, how should you prepare?

Why Higher Inflation May Be on the Way – And What to Do About It

Since the early 1980s, central banks worldwide have been working to squeeze inflation out of the economy. Disinflation is the process of lowering the inflation rate, and since the policy was implemented, inflation has declined from double digits to single digits.

Unfortunately, economic prosperity is dynamic rather than a fixed destination, and central bankers can rarely rest on past accomplishments. One concern is that disinflation could eventually give way to deflation, an entirely different and far more dangerous outcome. Under deflation, wages, asset values, and general price levels decline. While that may seem positive on the surface, it is a recipe for an economic depression. It was the driving force behind the Great Depression of the 1930s. The problem with deflation is that it feeds on itself and turns ugly, which is exactly what central banks want to avoid.

Estimating Future Inflation

Estimating price levels in the future is impossible to do with precision. There are many variables, including periods of relative price stability and others of rapidly rising prices. To invest effectively, it’s necessary to make a reasonable estimate of what price levels will be by the time you retire.

Let’s say that you’re 35 years old and you plan to retire at age 65, meaning you need to project where price levels will be in 30 years. No tool can provide an accurate picture of the future, But we can look back at what inflation has done to the value of a dollar over the past 30 years and use it as a loose guide using the Bureau of Labor Statistics Inflation Calculator.

By entering 1995 to cover the past 30 years and then $1,000, we find that in 2025 it takes approximately $2,000 to buy the same amount of products and services that $1,000 bought 30 years ago. In that scenario, if you believe you will need $1 million in today’s dollars to support your retirement, your savings target should be approximately $2 million to account for the effects of inflation between now and then.

Inflation and Your Income

This could play out one of two ways. If wage growth reacts quickly to higher inflation, consumers may be in a position to increase spending, increasing demand and potentially creating new jobs. On the other hand, if wages continue to run behind the price curve, higher prices could quickly outpace salary increases and slow the economy further.

Now is an excellent time to cut living expenses in anticipation of higher inflation. In particular, be hesitant to take on any new expenses or financial obligations until you have a clear picture of where economic conditions are headed.

Inflation and Your Debt

Inflation usually translates into higher interest rates. That makes a strong case for locking in interest rates when they are low and converting variable-rate debt to fixed-rate debt as soon as possible. Interest rates have fluctuated significantly in recent years, rising sharply through 2022-2023 before beginning to decline in 2024. Variable-rate debt remains a risk in any rising rate environment, making fixed-rate debt the safer choice when planning for inflation.

Inflation and Your Investments

Since higher inflation often means higher interest rates, the impact on your investments can be substantial. Here is how inflation can affect some common investments:

Because interest-bearing investments compete with stocks, rising interest rates may not bode well for stocks. Resource stocks, however, may benefit from higher inflation.

Fixed income assets are particularly vulnerable, committing your money to a five or ten year certificate of deposit or Treasury note during a rising rate environment means tying up your capital at lower rates while higher returns become available elsewhere.

Money market funds and very short-term securities may not pay much interest, but they keep your cash free to take advantage of higher rates later.

Commodities, particularly energy, tend to benefit from inflation, along with construction materials, precious metals, and rare industrial commodities.

Investing for Inflation After Retirement

One of the complications in accounting for inflation in retirement is that inflation does not stop once you retire. With people typically living into their 80s and 90s, your investment money will need to cover living expenses for another 20 or 30 years after you retire.

This means you will need to reinvest at least part of your investment earnings into your portfolio to account for higher price levels in the future. The safe withdrawal rate offers some guidance here. The theory holds that if you withdraw no more than 4% of the balance of a well-diversified retirement portfolio, you will never run out of money. That means your average annual return on investment needs to be greater than 4% per year once you retire.

So if you estimate a 3% annual inflation factor, you will need to earn 7% on your portfolio each year, withdrawing 4% for living expenses while reinvesting the remaining 3% to keep your portfolio adjusted for inflation. Your investments will not hit 7% every year, there may be years of 10% gains and years of 3% gains or losses, but that needs to be your average over time.

Best Investments to Counter The Impact of Inflation

Interest-bearing investments like certificates of deposit used to be the mainstay of retired investors, providing steady income and protection of principal. While interest rates have risen in recent years, relying solely on interest-bearing investments still carries significant risk, rates fluctuate with economic conditions and may not consistently outpace inflation over the long term.

Historically, stocks and real estate have been the best investments to counter inflation, particularly the persistent, low-level variety seen in recent decades. Stocks have returned an average annual rate of return above 10% since 1928. Real estate has performed similarly well over the long term.

However, as many retirees don’t want to be involved with owning and managing rental properties, real estate investment trusts (REITs) are worth considering. REITs invest in real estate either through direct equity participation or by providing mortgages. North American REITs have posted an average annual total return of approximately 4.9% over the last 10 years, though individual sectors vary significantly.

Since stocks and real estate carry higher risk than bonds and other interest-bearing investments, you should not have 100% of your money invested in them. Instead, aim for a blend that provides the needed return rate and a measure of safety. A well-considered asset allocation strategy can help you find the right balance between growth and stability for your specific situation.

Here is a sample retirement portfolio that could historically keep pace with inflation. If you need a 7% average annual return, investing 67% of your portfolio in stocks and real estate and 33% in interest-bearing investments can get you there. The exact return on interest-bearing investments will vary based on current rates, the key is maintaining the right balance between growth assets and more conservative investments for your situation. Depending on your current portfolio and future retirement needs, you may need to put a larger percentage into stocks and real estate to reach your target return.

How to Beat Inflation: 14 Strategies

Over the long term, prices tend to go up and the purchasing power of your dollar tends to go down. Here are 14 strategies you might employ to protect yourself:

1. Treasury Inflation Protected Securities (TIPS)

One of the most straightforward and possibly safest strategies for offsetting inflation. TIPS are special bonds periodically adjusted to keep pace with inflation. While you probably will not earn a huge return, your money will be backed by the U.S. government and your purchasing power will be preserved. I-bonds are another inflation-protected Treasury investment worth considering.

2. Index Funds

Given a long enough period, past performance indicates that the stock market has historically generated positive returns over the long term. The overall stock market offers inflation-beating returns over the long haul. You can take advantage of the power of the entire stock market with index funds and ETFs that follow broad market indexes. Fees are low and the diversification is broad, two of the most important factors in long-term investing success.

3. Commodities

If you can stomach the volatility and the risk associated with investing in commodities, you may be able to stay ahead of inflation. People will always need commodities, so due to that demand they tend to be inflation sensitive. You can limit some of your risk with commodity ETFs.

4. Start a Business

You can keep up with inflation by adjusting prices if you provide products and services. With slight adjustments when it comes time to renegotiate, creating a revenue stream that paces inflation is possible. With the help of the internet, you can gain the advantages of working from home while potentially staying ahead of inflation.

5. Lock in Higher Interest Rates on Cash Accounts

Keep watch over interest rate trends and lock in higher rates on your cash when possible. One of the key reasons for CD laddering is so that you can take advantage of higher rates when they come around.

6. Lock in Lower Fixed Rates on Debt

If you have debt, now is the time to pay it down. Getting fixed rates on mortgage and car loans can reduce the effects of inflation later. Consider refinancing high-interest variable-rate debt into fixed-rate alternatives, and while you are at it, pay down high-interest credit card debt so more of your payment goes to the principal.

7. Invest in Good Businesses with Low Capital Needs

One of Warren Buffett’s long-standing strategies is investing in businesses that earn high returns on capital invested. During inflationary times, businesses with low capital needs that can maintain their earnings tend to fare better than those required to invest more money at higher prices just to maintain their position.

8. Avoid Traditional Bonds

Bond investors can be hurt significantly in an inflationary environment. Purchasing a long-term bond at a low yield locks up your capital while inflation erodes its real value.

9. Be Cautious with Gold and Cryptocurrencies

Focus on productive assets such as stocks or real estate that generate dividends and income for their owners. Warren Buffett has remained consistently skeptical of cryptocurrency as an investment, arguing it does not produce anything of intrinsic value. Regardless of one’s view on crypto, it remains a highly speculative and volatile asset class that may not be appropriate for inflation protection.

10. Reduce Your Expenses

Many people resist downsizing when things cost more, but you may be able to offset some inflationary increases by taking a closer look at your bills and cutting what you do not need. Everyday bills that could be cut or reduced include recurring subscriptions, phone, internet, car insurance, homeowners or renters insurance, food, and energy costs.

11. Make Tax-Efficient Investments

Maximize tax efficiencies on all your investments by adopting tax-efficient investing strategies. Put assets that lose a smaller percentage of their returns to taxes in taxable accounts, and put assets that lose a higher percentage to taxes in tax-advantaged accounts like a TSP, Roth IRA, or 401(k).

12. Avoid Companies with High Labor Costs

During inflationary periods, companies that depend on their workforce, such as healthcare and retail, try to raise wages to retain and attract employees. Growing wages encourage even higher price increases, creating a spiraling inflation trend. Avoiding these companies during inflationary periods can reduce your exposure to this dynamic.

13. Research Past Inflation Trends

Researching past high inflation trends can help you identify current and future inflation patterns. Pay attention to commodity stock performance, energy sector stability, and the performance of real estate and other alternative asset classes during previous inflationary periods.

14. Reduce or Eliminate Your Variable-Rate Debt

Credit cards and variable-rate mortgages can cost you significantly during inflationary periods. Paying down, paying off, or consolidating variable-rate debt into lower fixed-rate debt can lessen inflationary impacts. Interest rates have fluctuated significantly in recent years, monitoring rate trends and acting accordingly is an important part of inflation protection.

Final Thoughts

Protecting your money from inflation requires a proactive, multi-layered approach. No single strategy will fully insulate you from your inflation’s effects, but a combination of diversified investments, tax-efficient accounts, reduced debt, and disciplined spending can significantly reduce its impact on your long-term financial health.

For military members, the TSP’s inflation-adjusted COLA on military pensions, combined with consistent contributions to tax-advantaged accounts, provides a strong foundation for weathering inflationary periods. Building on that foundation with the strategies outlined above gives you the best chance of maintaining your purchasing power throughout retirement.