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Part of our Complete Investing Guide — how to protect (and grow) your portfolio when inflation runs hot.
High inflation is one of the few market conditions where doing nothing is actively expensive. Cash in a savings account at 4% APY loses purchasing power if inflation runs at 5%. Bonds get crushed if rates keep rising. Even some "safe" stocks underperform when input costs squeeze margins.
This guide breaks down which asset classes have historically protected (and grown) wealth during inflation, the specific funds and tickers that actually work in 2026, and the common mistakes that turn a defensive portfolio into a losing one.
Why Inflation Destroys Portfolios Quietly
Inflation eats wealth through two mechanisms most investors underestimate.
1. Real returns shrink. A portfolio earning 7% nominal during 5% inflation produces only ~2% real return. Over 30 years, a 2-point inflation differential cuts your final balance by roughly 45%. That's the difference between retiring at 55 and retiring at 67.
2. Asset correlations break. The classic 60/40 portfolio (60% stocks, 40% bonds) relies on bonds zigging when stocks zag. During high-inflation regimes (1970s, 2022), both fell together. Diversification stopped diversifying. Investors who never rebalanced lost on both sides.
If you want the foundational picture, our breakdown of what inflation is and how to protect your money covers the macroeconomic mechanics before you decide which assets to lean into.
The 5 Asset Classes That Protect Against Inflation
Not every "inflation hedge" is equally effective. Here's the historical track record of each, ranked by reliability.
1. I Bonds and TIPS — The Inflation-Indexed Defense
Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds (I Bonds) are the only assets that contractually adjust with CPI. When inflation rises, your principal (TIPS) or interest rate (I Bonds) automatically scales. No market risk on the inflation component.
Tradeoffs: TIPS lose value if real yields rise (2022 was brutal). I Bonds cap at $10k/year per person and have a 1-year lockup plus 3-month interest penalty if redeemed before year 5.
If bonds are unfamiliar territory, see how to invest in treasury bonds and bills for the foundational mechanics.
2. Real Estate and REITs — The Rent Pass-Through Hedge
Landlords raise rents with inflation. Property values track replacement costs (which rise with input prices). REITs (Real Estate Investment Trusts) capture this without you owning physical property.
Top REIT picks for inflation environments: VNQ (Vanguard Real Estate ETF, 0.13% expense ratio) for broad exposure; O (Realty Income) for monthly dividends from triple-net leases. Tradeoff: REITs are interest-rate sensitive in the short term — when the Fed hikes aggressively, REITs sell off before the rent pass-through shows up in earnings.
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3. Commodities and Energy — The Direct Inflation Play
Inflation often starts with rising commodity prices (oil, gas, food, metals). Owning the input goods themselves moves with inflation by definition.
Practical exposure: DBC (Invesco DB Commodity Index) for broad commodities; XLE (Energy Select Sector SPDR) for US oil and gas majors. Tradeoff: commodities are notoriously volatile. Annual returns can swing ±40%. Position size accordingly — most planners cap commodities at 5-10% of portfolio. For deeper context, see how to invest in commodities.
The Intelligent Investor by Benjamin Graham
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4. Quality Dividend Stocks with Pricing Power
Companies that can raise prices without losing customers (consumer staples, healthcare, utilities, software) pass inflation costs to consumers and keep their margins. These are the "pricing power" stocks Buffett popularized.
Where to find them: SCHD (Schwab US Dividend Equity ETF) screens for high-quality dividend growers; XLP (Consumer Staples Sector SPDR) gives concentrated exposure to companies like Coca-Cola, Procter & Gamble, and Walmart. Avoid: high-debt, low-margin businesses (airlines, basic retail) — they get crushed when input costs rise faster than they can re-price.
5. Gold and Precious Metals — The Crisis Hedge
Gold's track record as an inflation hedge is more mixed than headlines suggest. In the 1970s it crushed everything (+1,400%). In the 2022 inflation spike it barely moved. Gold works best when inflation accompanies currency debasement or geopolitical crisis — not pure demand-pull inflation.
Practical exposure: GLD (SPDR Gold Trust) for liquidity; IAU (iShares Gold Trust) for lower expense ratio (0.25% vs 0.40%). For our full guide see how to invest in gold in 2026.
The 3 Mistakes That Destroy Inflation Portfolios
1. Going all-in on one hedge. Concentrating 50% of your portfolio in gold or commodities sounds defensive but creates massive idiosyncratic risk. Each inflation hedge has different failure modes. Spread across 3-5 of them.
2. Selling stocks at the peak of fear. 2022 was the worst year for 60/40 portfolios in modern history — but selling at the bottom locked in those losses. By 2023-2024, equities recovered most of the drawdown. Inflation hedges work as part of a diversified portfolio, not a replacement for stocks.
3. Ignoring the tax inefficiency. TIPS, REITs, and commodities all generate ordinary income (taxed at marginal rates, not capital gains rates). Hold them in tax-advantaged accounts (IRA, 401k) when possible. Pure stock holdings (SCHD, XLP) are more tax-efficient in taxable accounts.
How to Build an Inflation-Resistant Portfolio
A realistic allocation for 2026, assuming a 25-45 year-old with a long horizon:
Core (60%): Broad US + international equities. VTI or VOO for US, VXUS for international. This is the long-term growth engine. Stocks have been the best long-run inflation hedge over 30+ year horizons.
Inflation defense (20%): Split between TIPS/I Bonds (10%), REITs (5%), and dividend growers like SCHD (5%). Direct exposure to assets that adjust with prices.
Diversifier (10%): 5% commodities (DBC) + 5% gold (IAU). Crisis hedge that pays off when correlation breaks down.
Cash reserve (10%): High-yield savings or money market fund (4-5% APY in 2026). Liquidity for opportunities and emergencies. Yes, cash loses to inflation — but having dry powder during a 30% market drop more than offsets it.
Rebalance annually. When one bucket outperforms, sell some and refill the underweight bucket. This forces "buy low, sell high" automatically.
How to Invest During High Inflation FAQ (2026)
What investments perform best during high inflation in 2026?
Historically the best inflation performers are TIPS and I Bonds (contractual adjustment), REITs (rent pass-through), commodities (direct input pricing), and high-quality dividend stocks with pricing power (SCHD, XLP). The catch: each has a different failure mode, so a 3-5 asset blend is more reliable than concentrating in any single "best" hedge.
Should I buy I Bonds or TIPS in 2026?
Both. I Bonds for the first $10k/year per person (no market risk, automatic CPI adjustment, but locked up for at least a year). TIPS for everything beyond that (no purchase cap, but face market risk if real yields rise). A 50/50 split between the two is a clean way to maximize inflation protection within the I Bond cap.
Is cash a bad investment during inflation?
Cash loses purchasing power at the inflation rate, but it's not "bad" — it serves a different purpose. Having 6-12 months of expenses in cash means you don't have to sell stocks at market lows to fund emergencies. The right amount is the minimum that lets you sleep at night. Anything above that should be invested.
Do stocks protect against inflation long-term?
Yes — over 30+ year horizons, US equities have returned ~7% real (after inflation). But during short inflation spikes (12-36 months), stocks can underperform badly. The lesson: stocks are the long-term inflation hedge, but you need short-term defenders (TIPS, cash, REITs) to bridge the rough patches without panic-selling.
Is gold worth buying as an inflation hedge in 2026?
Gold is a crisis hedge more than an inflation hedge. It worked spectacularly in the 1970s but barely moved during 2022's 9% CPI spike. Most planners recommend a small allocation (3-5%) as portfolio insurance against tail risks (currency debasement, geopolitical crisis), not as the primary inflation defense.
How much of my portfolio should be in inflation hedges?
For a typical long-horizon investor (25-45 years old), 20-30% in inflation-defensive assets is a reasonable allocation. Going higher (50%+) sacrifices long-term growth for short-term inflation protection — usually a bad tradeoff. The rest should remain in growth equities, which historically outperform inflation hedges over decades.
What stocks do well during inflation?
Companies with strong pricing power: consumer staples (PG, KO, WMT), healthcare (JNJ, UNH), utilities (NEE, DUK), and high-quality software (MSFT). These businesses can raise prices without losing customers, so margins stay intact when input costs rise. SCHD, XLP, and XLV are diversified ETF exposures to these segments.
The Bottom Line
Inflation isn't a problem you "solve" — it's a permanent feature of fiat economies. The right response is structural: build a portfolio that has 3-5 different mechanisms for adjusting with prices, rebalance annually, and stay invested through the rough patches.
The investors who do worst during inflation aren't the ones who picked the wrong hedge — they're the ones who panicked, sold at the bottom, and missed the recovery. The investors who do best are the ones who built a balanced portfolio years before inflation became a headline and stayed disciplined when everyone else didn't.
For the broader strategy context, see our guides on how to invest in REITs for real estate exposure and how to invest in bonds during rising interest rates for two of the foundational pieces of an inflation-resistant portfolio.
📚 Recommended Reading
by Benjamin Graham
Graham's chapter on protecting capital against inflation is the foundational text every value investor returns to during periods of rising prices. Time-tested principles, not market commentary.
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The Bond Book
by Annette Thau
The most accessible primer on TIPS, I Bonds, and treasury yield mechanics. If you want to allocate 20% of your portfolio to inflation-adjusted bonds and understand exactly what you're buying, this is the book.
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Want the full picture?
An inflation-resistant portfolio is one piece of a complete investing strategy. See our Investing Guide for the full sequence of asset allocation, account types, and rebalancing rules.
📥 Free download: The 10-Step Financial Independence Checklist
The same framework we use to stress-test portfolios against inflation, recession, and market drawdowns. Get the checklist free →
Disclosure: ZarWealth uses Amazon and other affiliate links throughout this article. We are not financial advisors. Always consult a fiduciary advisor for personalized investment decisions based on your specific situation.
