5 types of ETFs to help you survive inflation

If you flee stocks in the face of inflation and a possible recession, you risk missing out on the comeback. But you don’t have to just take it. Consider ETFs like these designed for times like this.

The Fed on Wednesday hiked its benchmark interest rate by 75 basis points, the biggest increase since 1994. The drastic measure to curb soaring inflation means one thing: the Fed sees inflation lingering for some time. Rising inflation, along with a number of other untimely events, has pulled the market way down in 2022. While you may think avoiding the market entirely is the safest option, you don’t want to be on the sidelines when the market turns. Missing out of the market’s best days is costly to your long-term rewards.
Instead, consider shifting some of your money into the following inflation-fighting categories via exchange-traded funds (ETFs), so you can avoid picking and choosing individual winners and losers in this market.

1. TIPS

Treasury Inflation-Protected Securities (TIPS) are a type of Treasury marketable security issued by the US government. The principal of a TIPS is linked to the Consumer Price Index — increasing when inflation rises and decreasing when inflation drops. This protects investors from a decline in the purchasing power of their money.
TIPS are issued in terms of five, 10 and 30 years and pay interest at a fixed rate every six months. At maturity, you are paid the adjusted principal or the original principal, whichever is greater. TIPS ETFs hold a collection of these assets. One example:

Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)

• Investment objective: Seeks to track the performance of the Bloomberg US Treasury Inflation-Protected Securities (TIPS) 0–5 Year Index.
• Total assets: $21.1 billion
• YTD returns: -1.93%
• Expense ratio: 0.04%
• Latest dividend: $0.48690
• Dividend yield: 5.56%

2. Gold

Gold has long been hailed as a hedge against inflation, increasing in value as the purchasing power of the dollar declines. It isn’t fool-proof, though — some studies show gold as being an efficient hedge against inflation, while others show that its hedging ability isn’t always consistent. Still, gold prices have been higher since the Fed announced more aggressive rate hikes on Wednesday, suggesting investors see it more as a safe haven than not as inflation abounds. So while gold may not be the best inflation protector, you should consider giving it a spot in your portfolio. Here’s one of the largest gold ETFs.

SPDR Gold Shares (GLD)

• Investment objective: Designed to track the price of gold.
• Total assets: $62.4 billion
• YTD returns: 0.14%
• Expense ratio: 0.40%
• Latest dividend: $0
• Dividend yield: 0%

3. Oil

Oil prices usually increase along with inflation, and vice versa, so investing in companies that profit from rising prices can be a good hedge in periods of rising costs. Couple that with a global oil supply that’s currently well below normal levels, as the US and EU move to ban most Russian oil imports following its invasion of Ukraine, and investors have a recipe for possibly significant gains.
The energy sector, largely made up of oil companies, is up nearly 42% year to date. Experts think oil prices will go higher from here, which could continue to be a boon for investors. Here’s one ETF tracking the price of oil:

United States Oil Fund LP (USO)

• Investment objective: For the daily changes of its shares’ net asset value (NAV) to reflect the daily changes of the spot price of light sweet crude oil.
• Total assets: $3.1 billion
• YTD returns: 58.54%
• Expense ratio: 0.81%
• Latest dividend: $0
• Dividend yield: 0%

4. Commodities

Aside from gold and oil, commodity prices in general rise when inflation is accelerating, which means investing in this market could provide investors with a hedge against inflation. In fact, research by Vanguard shows that the consistent positive beta between commodities and inflation over the last decade suggests that a 1% rise in unexpected inflation would produce a 7% to 9% rise in commodities.
Commodity prices have been surging since 2020, but Russia’s invasion of Ukraine triggered widespread disruptions in global commodity markets, particularly in those where Russia and Ukraine are key exporters. Current conditions suggest investing in commodity ETFs like this one could help protect you as inflation surges.

Invesco DB Commodity Index Tracking Fund (DBC)

• Investment objective: Seeks to track changes in the level of the DBIQ Optimum Yield Diversified Commodity Index Excess Return
• Total assets: $5 billion
• YTD returns: 41.8%
• Expense ratio: 0.87%
• Latest dividend: $0
• Dividend yield: 0%

5. Real estate

Real estate is considered another approach to hedge against inflation, as it generally doesn’t move in sync with stocks and bonds. Property values also tend to increase as inflation edges higher and landlords can generally raise rents to adjust for rising costs.
Investors can avoid the headaches of owning physical properties during these times and achieve the same inflation-hedging advantages by investing in real estate ETFs with portfolios of real estate investment trusts (REITs) and other income-producing real estate. When rents increase when prices do, investors should benefit from a reliable stream of rising dividend income. Here’s one:

Vanguard Real Estate ETF (VNQ)

• Investment objective: Seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 Index.
• Total assets: $78.4 billion
• YTD returns: -22.34%
• Expense ratio: 0.12%
• Latest dividend: $0.57670
• Dividend yield: 2.6%

Bottom line

Tweaking your investments is part of the process of maximizing your portfolio’s returns and the same is true during periods of rising inflation. TIPS, gold, oil, commodities and real estate tend to perform better during inflationary environments, so consider making these ETFs or others in their categories a part of your portfolio as you navigate this period of rising inflation.
For more ETF investing ideas, see our page on top-performing ETFs right now.

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