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How to Hedge Against Inflation?


Hedging is a strategy by which you can minimize risk and losses on your investments. In times of peak inflation, hedging becomes a necessary technique to stop your investments from dissolving.


Some asset classes are directly correlated to inflation and rise with the surge in inflation rates. While there are other investment options whose specific purpose is to safeguard against inflation.


As we exit the pandemic bubble, the market continues to adjust and currently witnessing a downtrend. The pain points of this bearish market are accentuated by sky-high inflation and interest rates. Tech stocks are crashing, and commodities prices are touching the roof.


Investors are grappling for shores of certainty, but the tides are turbulent and vengeful. It is crucial to erect walls of safety if we wish to protect our wealth from drowning in this deluge.

Here are six standard hedging strategies to use against inflation:


Ways to Combat Inflation and Build Immunity


1. Diversify into Uncorrelated Foreign Economies



Diversifying into foreign economies can defend against inflation risks. By investing in economies that are uncorrelated, you neutralize losses incurred from inflation in one with safety in other economies.


2. Invest in Bank Loans and Bank Bonds


Investing in bank bonds and loans is highly unlikely to turn awry. Banks raise interest rates to slow down lending as a way to tame inflation. Since banks profit from these high-interest rates, it is natural that bank securities fare well during inflation.


Banks provide insured as well as volatile investment options, depending on investors’ risk appetite. Certificate of Deposits and saving bonds are risk-averse investments, while bond mutual funds and stocks exhibit rapid movements.

3. Real Estate Securities