{"id":16661,"date":"2023-09-07T15:16:10","date_gmt":"2023-09-07T22:16:10","guid":{"rendered":"https:\/\/canary.kcprod.info/blog\/?p=16661"},"modified":"2023-09-07T15:16:12","modified_gmt":"2023-09-07T22:16:12","slug":"investing-during-inflation-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/","title":{"rendered":"Investing during inflation: What you need to know"},"content":{"rendered":"\n

Even with rising interest rates, many parts of the economy are still seeing inflation. In an inflationary environment, people look at their investments and cash and wonder if they are still investing their wealth in ways that give them protection against inflation<\/a>.\u00a0<\/p>\n\n\n\n

While people often talk about whether a particular savings account or investment \u201ckeeps up\u201d with inflation, the truth is that low-interest savings accounts very rarely generate enough interest to withstand the loss of buying power, considering the recent inflation numbers<\/a> and average savings account rates<\/a>. Instead, investing is a great way to help your savings keep up with inflation. We cannot know the future, but based on historical data, there are some investment strategies that historically performed well during periods of inflation.\u00a0<\/p>\n\n\n\n

Let\u2019s look at a few of these strategies to see what factors make them more or less effective for your long-term and short-term goals.<\/p>\n\n\n\n

How inflation affects stocks<\/strong><\/h2>\n\n\n\n

One of the most effective strategies for strong returns on your investments is to invest in low-cost index funds and hold them for a long time. This is the core of the strategy behind Wealthfront\u2019s automated investing products.\u00a0<\/p>\n\n\n\n

Over the long term, stocks and index funds offer strong potential growth even in an environment of inflation. However, in the short term, stocks can be volatile<\/a>, and trying to time the market can result in investments that don\u2019t outpace returns found in passively managed portfolios. Buying stocks consistently and holding stocks long term<\/a>, through periods of both high and low inflation, is one of the most reliable ways to achieve returns over time that outpace inflation\u2019s effects<\/a>.<\/p>\n\n\n\n

For investors looking to mitigate risk during volatile markets, implementing a dollar-cost averaging strategy can offer a strategy to spread out your investment timing and therefore avoid investing all your funds before potential downturns. By dollar-cost averaging rather than trying to time the market, you periodically invest a set amount of money no matter the current market. Dollar-cost averaging can enable investors to mitigate the effects of market volatility, potentially resulting in gains over the long term even when market averages are stagnant or decline in the short term. We crunched the numbers on investing in equities during inflation<\/a> and found that even during two high-inflation periods of economic history, stagflation in the 1970s and the dot-com bubble burst of the early 2000s, dollar-cost averaging and investing in low-cost index funds still left investors with positive returns relative to inflation.\u00a0<\/p>\n\n\n\n

A steady approach to investing in low-cost index funds like those in the Wealthfront Automated Investing Account<\/a> portfolios allows for long-term investing that captures the overall upward trajectory of the market despite occasional downturns. The inflation-adjusted returns on the S&P 500<\/a> over time show that, historically, even investing during times of inflation eventually shows gains that beat inflation and grow your returns.\u00a0<\/p>\n\n\n\n

How inflation affects real assets<\/strong><\/h2>\n\n\n\n

Real assets, like real estate, change in value in response to supply and demand. Even in an inflationary environment, a real asset like a home might increase in value if there are too many interested buyers and a low inventory of homes.\u00a0<\/p>\n\n\n\n

Inflation does make it harder to buy real assets in the sense that your down payment savings might not go as far. However, some homeowners may benefit from having locked in a low-interest rate in the past, prior to an inflationary period. For instance, homeowners who purchased a home with a fixed-rate mortgage when rates were less than 3% might find that they have a relatively low-cost home payment set up for the next 30 years even if rates and inflation soar. With lower housing costs than others with similar incomes, homeowners may have room to save more since they aren\u2019t having to pay current market rates for housing.<\/p>\n\n\n\n

Another challenge comes if you choose to see real assets as an investment vehicle, such as rental properties<\/a>. Owning individual rental units can be a risky strategy because the market can change and your rental income isn\u2019t guaranteed; if you only invest in rental properties, your investments aren\u2019t diversified and you\u2019re depending on those properties continuing to draw in renters at the rental rate you need. Rental properties also don\u2019t tend to offer liquidity; if you value being able to move your money around, real assets might not be the most suitable approach.<\/p>\n\n\n\n

How inflation affects cash<\/strong><\/h2>\n\n\n\n

Cash is affected by inflation<\/a>; it loses value and buying power when it isn\u2019t earning anything. If you want to retain the ability to spend your cash easily and reduce the impact of inflation, uninvested cash can be placed in a high-yield account like the Wealthfront Cash Account<\/a>, designed for short-term savings until you\u2019re ready to invest. However, even a very high APY like 3.30% cannot always fully offset high inflation, which is why the better strategy to use during inflation is to continue to invest funds you won\u2019t need for at least 3-5 years.\u00a0<\/p>\n\n\n\n

The assets you keep in cash might include the money you need for everyday bills, a 3-6 month emergency fund, and funds for upcoming purchases in the next year. The rest of your wealth can weather inflation better, according to historical data<\/a>, when it is invested in a diversified portfolio in the stock market and across asset classes, like the ones available in the Wealthfront Automated Investing Account<\/a>.\u00a0<\/p>\n\n\n\n

How inflation affects bonds<\/strong><\/h2>\n\n\n\n

The bond market is typically considered less risky than the stock market<\/a>, but with lower risk, you typically see lower returns. When you invest in bond ETFs<\/a> through a product like the Wealthfront Automated Bond Portfolio<\/a>, you can diversify your holdings and risk while experiencing better liquidity than with individual bond purchases.<\/p>\n\n\n\n

When you know that you\u2019ll want to use your money in the medium term, such as in the next 1 to 3 years, or you want yields that are potentially higher than a Cash Account but with very low risk, investing in bond index funds can be a nice additional option for where to invest.<\/p>\n\n\n\n

While bonds aren\u2019t guaranteed to keep up with inflation, the answer to \u201cAre bonds a good investment during inflation?\u201d can be yes, particularly if you want your portfolio to have a relatively low level of risk.\u00a0<\/p>\n\n\n\n

Keep investing in a diversified portfolio built to weather all market conditions<\/strong><\/h2>\n\n\n\n

There are certain times, such as during a recent job loss or a major source of new expenses, when it makes sense to invest less and hold more cash, but a time period of inflation isn\u2019t necessarily one of them. Rather, it\u2019s usually wiser to stay the course, continuing to invest regularly so that your money will reap long-term returns.<\/p>\n\n\n\n

Those long-term gains are possible when you don\u2019t frequently move your money around chasing a particular short-term change in the market, even a change like inflation. The Wealthfront Automated Investing Account<\/a> offers a diversified portfolio and is built to help your money weather changes in the short-term market while working toward the long-term goal of building wealth over time.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Even with rising interest rates, many parts of the economy are still seeing inflation. In an inflationary environment, people look at their investments and cash and wonder if they are still investing their wealth in ways that give them protection against inflation.\u00a0 While people often talk about whether a particular savings account or investment \u201ckeeps […]<\/p>\n","protected":false},"author":129,"featured_media":13593,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1282],"tags":[1614,1281],"coauthors":[82],"class_list":["post-16661","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-inflation","tag-investing"],"acf":[],"yoast_head":"\nHow does inflation affect investments?<\/title>\n<meta name=\"description\" content=\"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How does inflation affect investments?\" \/>\n<meta property=\"og:description\" content=\"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/\" \/>\n<meta property=\"og:site_name\" content=\"Wealthfront Blog\" \/>\n<meta property=\"article:published_time\" content=\"2023-09-07T22:16:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-09-07T22:16:12+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"977\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"The Wealthfront Team\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Wealthfront\" \/>\n<meta name=\"twitter:site\" content=\"@Wealthfront\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"The Wealthfront Team\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/\",\"url\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/\",\"name\":\"How does inflation affect investments?\",\"isPartOf\":{\"@id\":\"https:\/\/canary.kcprod.info/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg\",\"datePublished\":\"2023-09-07T22:16:10+00:00\",\"dateModified\":\"2023-09-07T22:16:12+00:00\",\"author\":{\"@id\":\"https:\/\/canary.kcprod.info/blog\/#\/schema\/person\/3eca21c0f00c276ebcaa3d634995cb77\"},\"description\":\"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.\",\"breadcrumb\":{\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage\",\"url\":\"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg\",\"contentUrl\":\"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg\",\"width\":2560,\"height\":977},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/canary.kcprod.info/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Investing during inflation: What you need to know\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/canary.kcprod.info/blog\/#website\",\"url\":\"https:\/\/canary.kcprod.info/blog\/\",\"name\":\"Wealthfront Blog\",\"description\":\"Personal Finance & Investing Insights\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/canary.kcprod.info/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/canary.kcprod.info/blog\/#\/schema\/person\/3eca21c0f00c276ebcaa3d634995cb77\",\"name\":\"The Wealthfront Team\",\"description\":\"The Wealthfront Team believes everyone deserves access to sophisticated financial advice. The team includes Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), a Certified Public Accountant (CPA), and individuals with Series 7 and Series 66 registrations from FINRA. Collectively, the Wealthfront Team has decades of experience helping people build secure and rewarding financial lives.\",\"url\":\"https:\/\/canary.kcprod.info/blog\/author\/teamwealthfront\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"How does inflation affect investments?","description":"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/","og_locale":"en_US","og_type":"article","og_title":"How does inflation affect investments?","og_description":"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.","og_url":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/","og_site_name":"Wealthfront Blog","article_published_time":"2023-09-07T22:16:10+00:00","article_modified_time":"2023-09-07T22:16:12+00:00","og_image":[{"width":2560,"height":977,"url":"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg","type":"image\/jpeg"}],"author":"The Wealthfront Team","twitter_card":"summary_large_image","twitter_creator":"@Wealthfront","twitter_site":"@Wealthfront","twitter_misc":{"Written by":"The Wealthfront Team","Est. reading time":"6 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/","url":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/","name":"How does inflation affect investments?","isPartOf":{"@id":"https:\/\/canary.kcprod.info/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage"},"image":{"@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage"},"thumbnailUrl":"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg","datePublished":"2023-09-07T22:16:10+00:00","dateModified":"2023-09-07T22:16:12+00:00","author":{"@id":"https:\/\/canary.kcprod.info/blog\/#\/schema\/person\/3eca21c0f00c276ebcaa3d634995cb77"},"description":"When the market changes, it can be tempting to change your investment strategy. Learn how inflation affects different investment options over time.","breadcrumb":{"@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#primaryimage","url":"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg","contentUrl":"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2020\/10\/pexels-john-guccione-wwwadvergroupcom-3531895-1-scaled.jpg","width":2560,"height":977},{"@type":"BreadcrumbList","@id":"https:\/\/canary.kcprod.info/blog\/investing-during-inflation-what-you-need-to-know\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/canary.kcprod.info/blog\/"},{"@type":"ListItem","position":2,"name":"Investing during inflation: What you need to know"}]},{"@type":"WebSite","@id":"https:\/\/canary.kcprod.info/blog\/#website","url":"https:\/\/canary.kcprod.info/blog\/","name":"Wealthfront Blog","description":"Personal Finance & Investing Insights","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/canary.kcprod.info/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/canary.kcprod.info/blog\/#\/schema\/person\/3eca21c0f00c276ebcaa3d634995cb77","name":"The Wealthfront Team","description":"The Wealthfront Team believes everyone deserves access to sophisticated financial advice. The team includes Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), a Certified Public Accountant (CPA), and individuals with Series 7 and Series 66 registrations from FINRA. Collectively, the Wealthfront Team has decades of experience helping people build secure and rewarding financial lives.","url":"https:\/\/canary.kcprod.info/blog\/author\/teamwealthfront\/"}]}},"_links":{"self":[{"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/posts\/16661","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/users\/129"}],"replies":[{"embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/comments?post=16661"}],"version-history":[{"count":7,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/posts\/16661\/revisions"}],"predecessor-version":[{"id":16670,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/posts\/16661\/revisions\/16670"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/media\/13593"}],"wp:attachment":[{"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/media?parent=16661"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/categories?post=16661"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/tags?post=16661"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/canary.kcprod.info/blog\/wp-json\/wp\/v2\/coauthors?post=16661"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}