As inflation jumped 6.2% in October — the biggest spike in more than 30 years — Americans are preparing for their purchasing power to take another hit.
But whether inflation is coming out of hibernation or we’re heading towards a bear market, Suze Orman, personal finance expert, says you should still lean on stocks for the long haul.
“Over the long-term stocks have produced the best gains after factoring in inflation,” wrote Orman in a blog post this past summer. “Bonds and cash struggle to keep pace with inflation; only stocks have a track record of earning more than inflation.”
Orman’s advice is sound. But some areas of the stock market perform better than others during periods of high inflation.
Whether you’re looking to invest thousands of dollars or just your “spare change” from everyday purchases, the following three sectors might give you an extra boost over the next few years.
In her blog post, Orman says investors should be prepared for stocks to go through periods where their value dips.
But that also offers the chance to snap up more top-shelf stocks at bargain-bin prices. When the next pullback happens (and it will happen), there’s one place that investors might want to look to first: banks.
Unlike the vast majority of other industries, banks actually fare well when the Fed tightens up because of their asset-sensitive nature. When interest rates rise, bank assets like bonds and loans tend to climb higher than their liabilities such as deposits.
Rising rates also mean that banks can earn a wider spread between what they pay out in savings account interest and what they earn from Treasuries.
Another great thing about buying bank shares is it’s like shooting fish in a barrel.
Just pick two or three of the country’s largest banks, like Bank of America, Citigroup, and Wells Fargo, and you should have all the positive exposure to rising interest rates you need.
Even when people slash their budgets to help offset rising prices, we know those auto and life insurance premiums will keep rolling in no matter what.
Which means although insurance may not be the most exciting industry, it’s a defensive business that can provide plenty of portfolio protection. This is especially the case because insurers typically earn better returns on their “float” when interest rates rise.
And on top of that, insurers often pay their shareholders dividends, which means you can count on a little extra cash a few times a year.
For those interested in investing in insurance, Chubb, Allstate and MetLife are some of the big, blue-chip names in the industry.
3. Precious metals
When it comes to investing in precious metals, these stock picks can be worth their weight in gold.
Gold and silver have long been considered safe haven assets, meaning when all else fails, their value doesn’t really tarnish.
You can always buy precious metal bullion or coins, but mining stocks and ETFs allow you to invest in the space at a low cost and without needing to find storage.
Moreover, large diversified mining companies like Rio Tinto and Freeport-McMoRan also dig up metals like copper, which is currently experiencing booming demand due to its role in electric vehicle production.
Historically, the best time to make money from metals is when inflation is poised to keep increasing — like right now.
Where to invest if those categories aren’t the right fit
To be sure, Orman’s advice overlooks several attractive investment options outside of the stock market.
For instance, farmland. Old-fashioned as it is, agriculture has historically offered better risk-adjusted returns than the stock market and even real estate.
Which makes it one of the best assets for forward thinking investors.
And these days, you won’t have to buy out Old McDonald to get your share of the profits. A new platform allows you to invest in farmland by taking a stake in a farm of your choice.
In no time, you’ll be sowing the oats of your very own bumper crop — without having to labor from sunrise to sunset.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.