10 Inflation Proof Investments In 2024: Fine Wine, Gold & Others

Inflation is a silent killer that slowly decreases the purchasing power of your fixed income. 

So, if you put your money into a savings account whose interest rate is less than the inflation rate, it would actually reduce the value of your money over time.

A way to combat this is to go for investment assets that’ll act as a hedge against market inflation, protecting your money during inflationary times.

Let’s explore what are inflation proof investments and why you should add them to your portfolio. We’ll also cover 10 assets that provide a hedge against inflation and how Vinovest can help you reduce inflation risk.

What Are Inflation Proof Investments?

As an investor, you can put your money into various asset classes like stocks, bond funds, or alternative investments like real estate and fine wine. If the returns from your investment are greater than inflation, it acts as an inflation hedge.

Some asset classes are riskier to invest in than others. For example, the cryptocurrency market is quite volatile, making it illiquid and not a foolproof inflation hedge. 

To mitigate inflation risk, look for investments like collectibles (fine wine, for example) and inflation linked bonds, whose interest rates increase with inflation. TIPS also make a good investment thanks to their government-backed protection.

You can also invest in commodities like oil which have a low elasticity of demand. This means that even when the price of oil changes, there is no significant change in its demand.

Why Should You Add Inflation Proof Investments To Your Portfolio?

The American Federal Reserve (the Central Bank) believes that maintaining low interest rates will encourage borrowing, increase cash flow, and ease inflation. However, the Federal Reserve reversed its policy and raised interest rates to slow down activity in financial markets to combat inflation. 

As a result, the Consumer Price Index (a measurement of inflation) in the USA rose by 7.9% between 2021 and 2023 - the highest it has been in 40 years.

Inflation isn’t expected to remain this high for long, but regardless of your inflation expectations, an inflationary period is a wise time to review your asset allocation. 

A professional portfolio manager can help you plan your social security fund by inflation-proofing your investments.

Inflation Proof Investments: 10 Asset Classes

Here are 10 asset classes to diversify and inflation-proof your investment portfolio:

• Fine Wine
• Gold
• Commodities
• Real Estate
• TIPS (Treasury Inflation Protected Securities)
• Stocks
• Floating-Rate Bonds
• Cryptocurrency
• Leveraged Loans
• Whole Life Insurance

1. Fine Wine

With rising inflation, fine wines also see increased prices, making them an excellent asset for your investment portfolio.

You can either buy and store bottles yourself to sell them at a higher price in the future or invest in well-performing wine stocks and bonds like Truett-Hurts or Diageo.

But, the easiest option is to buy and sell your wines through an online wine investment company like Vinovest.

But, why wine?

Fine wine has a low correlation with the global stock market. So it won’t be affected by market volatility. 

In fact, the fine wine market has outperformed most global equities. In the past 15 years, the fine wine market has yielded 13.6% annualized returns compared to 8.58% annualized returns yielded by S&P 500.

Interestingly, the international wine auction market has seen an uptick in popularity in recent years, thanks to a surge in demand from Asia.

According to the 2021 Sotheby’s Wine Market Report, Asia has driven the market and accounted for 52% of auction sales in 2021. 

There couldn’t be a better time to begin your fine wine investment journey.

Unlike popular belief, investing in fine wine is not for the rich and noble HNIs.

You can start investing in fine wine from the comforts of your home by signing upwith a trusted wine investment company like Vinovest. 

Vinovest will carefully authenticate, procure, store, and insure your investment-grade wines. And, when you’re ready to sell, it will help you find the right buyer, so you earn maximum profit.

Vinovest’s master sommeliers will combine their experience and quantitative investment models to curate your portfolio.

2. Gold

Gold is a physical, real asset that tends to hold its value under inflationary pressure, especially in countries where the native currency is losing value. That’s why it’s considered an “alternative currency.” 

Between 2001 and 2021, gold saw an average annual gain of 9.48%, while inflation in the USA averaged 2.4%.

Remember, gold doesn’t yield returns based on an interest rate, and there are additional costs in storing and insuring gold coins and bullion. You can mitigate these costs by investing in a gold-focused mutual fund, ETFs, Gold Futures, and Options.

3. Commodities

Commodities are a broad category of assets that include raw materials and agricultural products that are bought and sold like grain, oil, gas, and some financial instruments. 

Inflationary pressure leads to rising prices and the price of various commodities increases. For example, as inflation raises the price of oil, the price of petrol or gasoline also increases.

So, commodities act as an inflation hedge because their price increases with inflation.

You can invest in commodities via future contracts or ETFs that hold and manage future contracts. 

4. Real Estate

Real estate is an asset class that historically returns high yields during inflationary times. This is because real estate’s rising prices increase with the Consumer Price Index.

This is why your landlord can increase your rent every year. 

You can also go beyond home-ownership and invest in REITs (Real Estate Investment Trusts) or mutual bond funds that invest in REITs. REITs pool the capital of multiple investors and pay out dividends. 

However, Real Estate Investment Trusts must also pay property taxes. If authorities decide to raise property taxes, it will reduce your cash flow as a shareholder.

5. TIPS (Treasury Inflation Protected Securities) 

TIPS (Treasury Inflation Protected Securities) are inflation linked bonds sold by the US Treasury that protect your investment portfolio from high inflation.

TIPS help balance your fixed income or bond portfolio because they’re indexed to the inflation rate. A higher inflation rate means TIPS pay out more.

TIPS come in 5-year, 10-year, and 30-year maturities and pay out twice a year.

6. Stocks

Equities like growth stocks are publicly traded shares on the stock market that are expected to grow at a higher rate than average. 

A company with pricing power can increase its prices during times of high inflation to maintain profits. So, look for companies on the stock market with pricing power to provide the best inflation protection. 

You can choose to invest in individual growth stocks and equities or choose a basket of securities like an ETF (Exchange Traded Fund.) 

7. Floating-Rate Bonds

With rising inflation, bonds with fixed interest rates lose their attractiveness since your purchasing power decreases with higher inflation.

On the other hand, floating-rate bonds adjust their interest rates with the change in the Consumer Price Index, providing higher inflation protection.

You can buy floating-rate bonds through an Exchange Traded Fund or a mutual fund that owns a wide assortment of these bonds.

8. Cryptocurrency

Although not a physical, tangible asset, Cryptocurrency is often described as “digital gold.” Crypto is an asset class that acts as an inflation hedge in the same way gold does - by holding or increasing its value over time. 

A benefit to investing in crypto is that it’s more liquid than gold, and you can quickly trade it for cash.

A downside is that the crypto market can be very volatile and quite difficult to navigate for a new investor.

9. Leveraged Loans

A leveraged loan consists of pooled loans made to companies with high debt levels or poor credit scores.

As an investor in a leveraged loan, you’ll receive scheduled debt payments, typically at a floating interest rate.

Since these are loans to companies with poor credit scores, they can be risky as borrowers may default on payments.

10. Whole Life Insurance

A whole life insurance contract provides lifetime coverage and can act as a long-term inflation hedge. 

This isn’t a typical inflation-proof investment, but the dividends paid on participating policies can act as a partial inflation hedge. 

If your insurance company performs well in a year, you’re entitled to reap the benefits and receive dividends. 

The investment portion of whole life insurance also grows tax-free. So, you can borrow against the cash value to buy a house or pay for your children's college tax-free.

Inflation fears are a genuine concern in current financial markets. If you’re still unsure how to inflation-proof your investments, consult an institutional investor, your portfolio manager, or your financial advisor for assistance.

Invest In Fine Wine And Other Inflation Proof Assets Today!

As an investor, you need to select the right assets to protect your investments from inflation. An inflationary period is a good time to review your investment portfolio and diversify your asset allocation to include an inflation-proof asset like fine wine.

If you’re looking to invest in rare and authentic wines from around the world, sign up with a trusted wine investment platform like Vinovest right away.