How to Make Your Retirement Portfolio Inflation Proof

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To hear the talking heads tell it, there’s no inflation out there. And with the price of oil (and therefore gasoline) in a tailspin, inflation looks like the last thing anyone should be worried about. But long-term numbers tell a very different story.

29826363_sAccording to the Bureau of Labor Statistics Inflation Calculator, prices have roughly doubled in the last 25 years. It now takes $1,915 to buy what $1,000 bought in 1989. That works out to an average annual inflation rate of roughly 3%.

It’s also important to consider that the past 25 years have seen several oil price collapses, which have always given way to continued price increases overall. Moral of the story: enjoy cheap gas while it’s here. It’ll go back up soon enough.

In preparing for retirement, inflation can’t be ignored, no matter how tame it may seem at the moment. Retirement is about planning out over decades, and that means incorporating long-term trends into your plans. Inflation is one of those long-term trends that you can’t ignore.

And here is how you can inflation-proof your retirement portfolio. It’s always best to make these moves when inflation is low on the radar since it tends to come roaring back with a vengeance when it does return.

Treasury Inflation Protected Securities (TIPS)

Some portion of your retirement portfolio should always be invested in both cash and fixed income assets. However, inflation can wreak havoc with fixed income investments in particular.

For your cash position, the best investment vehicle is money market funds. This is because the rate of return on these funds fluctuates based on prevailing interest rates, which themselves react to the rise and fall of inflation. Though they won’t always provide the best returns on your money, your principal value will be protected by the fact that their interest rates will automatically adjust based on prevailing inflation.

For fixed income investments, Treasury Inflation Protected Securities, or TIPS, are probably the best place for your fixed income assets. Not only will you earn interest on your investment, but each year the principal balance of your position will be increased based on the Consumer Price Index (CPI).

You can buy TIPS in the denominations as low as $100, and for terms of five, ten or 30 years.

Real Estate

Though it has been up, then down, then up again in recent years, real estate has a history of being one of the very best investments you can have when it comes to inflation. From a retirement perspective, people should at least own their own home and plan on paying off their mortgages prior to retirement.

That alone should give you a substantial nest egg when retirement comes around. You can then either live in the property mortgage free or sell it for a large windfall that will increase your other retirement savings substantially.

Within your retirement portfolio, you can also add real estate investment trusts, or REITs as they are better known. These are invested in real estate or in mortgages, and they tend to pay high yields.

Whatever it’s doing in the near term, always remember that real estate is a long-term investment and one that tends to rise with inflation.

PeerStreet is a great marketplace for investing in real estate backed loans. PeerStreet’s platform provides investments in high-yield, short-term loans focused 100% on real estate debt.


It is often believed that commodities – particularly precious metals – are the single best asset you can hold in your retirement portfolio in response to inflation. In truth, it’s actually a mixed bag. Precious metals and commodities, in general, tend to be most effective as inflation hedges during times when inflation is particularly high. But in the slow burning inflation that we’ve experienced over most of the past 30 years, the record here has been less than spectacular. And in light of the collapse in the resource and oil sectors, investor prudence is warranted.

But for those times when inflation really heats up, taking a position in commodities can be an outstanding strategy. In the case of precious metals, you can take physical possession of gold, silver, or platinum coins. But a better strategy might be to invest in commodities through your retirement portfolio, using exchange traded funds (ETFs).

You can invest in ETFs that invest in all kinds of commodities, including, gold, silver, platinum, agriculture, oil, natural gas, energy, and even a commodity index. During times of slower inflation, which is most of the time, you’ll want to keep any position small, like in the low single digits range. But if inflation begins to accelerate, and it looks like a long-term trend, you might consider increasing your holdings.

Growth Stocks

Over the long haul, the slow type of inflation we’ve been seeing over the past several decades can take a big toll on your investment savings, even if rising prices don’t seem to be all that noticeable. For this reason, you should make sure that the bulk of your holdings are in growth stocks. They tend to react best to lower level inflation, certainly better than commodities and even real estate.

Growth stocks aren’t just the best investment for retirement planning, but they’re also perhaps the best when it comes to dealing with long-term, low-level inflation.

Make investing in stocks for the long-term automatic. It’s easy to up automatic investments either with your bank, a discount broker, or even a smartphone app like Robinhood. Put money away every month, when time are good and times are bad.

Inflation Sensitive Stocks

Still another strategy using stocks is to invest in inflation sensitive stocks. These can include stocks in companies engaged in energy, industrial metals, real estate, infrastructure development, home building, and agriculture. Since all of these sectors tend to increase in price with inflation – especially high inflation – they can improve the return in your stock position.

At the opposite end of the spectrum, if inflation is increasing you may want to get out of stocks in sectors that react negatively to inflation. This would include bank stocks, since higher inflation translates into higher interest rates, reducing their business and increasing the likelihood of loan defaults.

If you’re looking for places to keep traditional investment accounts, you might want to check out investing with Betterment or Stash Invest.

The newest robo-advisor on the market called M1 Finance gives the more established, sophisticated investors great investing options. M1 Finance simplifies the investment process for beginning and experienced investors alike. Unlike other robo-advisors, M1 Finance does not charge a fee, and it gives you the option of taking more control over your investments if you want them (and less if you don’t).

Inflation is certainly under control right now. But that makes now the best time to plan your strategy for when it returns. And if you’re investing for retirement, you need to be prepared for exactly that.