Which Investments Perform Best Against Inflation?

CD rates have done better in high inflation years than stocks and bonds, but they may have some catching up to do in order to repeat this track record.
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Inflation’s impact on investments is a critical consideration for financial planning. As the purchasing power of money declines over time, the value of investments can be eroded. This article delves into the nuanced ways inflation influences various investment types and offers insights for safeguarding your portfolio against its effects.

Inflation: a Recent and Longer-Term History

In the past 20 years, there has been only one calendar year in which inflation exceeded 4%. But in the 20 years before that, it was a completely different story. Inflation was above 4% for 13 of those years, with a high of 13.3% in 1979.

What could trigger a return of inflation? The price of oil is always a prime suspect. It was a driving force behind June’s inflation rising to 0.5% (which would project to an annual rate of more than 6%), and oil prices continued to surge in the first weeks of July.

With the possibility of a return to higher inflation, investors may want to familiarize themselves with the history of how different asset classes have performed under inflationary conditions.

Searching for Safe Havens

Below is a look at how some asset classes have performed over the past 40 years when inflation has been above 4% for the calendar year. This has happened 14 times, for a compound average annual inflation rate of 7.58% during those years. Since history does not usually repeat itself in a precise and orderly manner, this history is accompanied by some cautions on why things might be different going forward.

Deposit Accounts

Sometimes slow and steady is the way to go. According to Federal Reserve data, one-month CD rates beat the Consumer Price Index (CPI) in nine of the 14 high-inflation years, and beat inflation overall with a compound average annual return of 8.59% during those 14 years. One caution though: Those CD rates are close to zero today, so they have some catching up to do to get past inflation.

Why Certificates of Deposit Make Sense

Rising interest rates, often triggered by inflation, can render certificates of deposit (CDs) a favorable choice.

As interest rates increase, the yield on CDs also rises, enabling investors to earn higher fixed returns.

This dynamic is particularly beneficial for CDs, as they offer a fixed interest rate over a specified term.

Locking in a higher rate through CDs can provide a hedge against inflation’s erosion of value, ensuring that your investment maintains its real value and provides a stable source of income amidst changing economic conditions.

Which Banks Have the Best CD Interest Rates?

CD interest rates are one the rise. Compare CDs and find the best rates being offered today.


Gold has a reputation as an inflation hedge, and indeed, of the asset classes discussed here, it has the best historical returns in high-inflation years with an annualized average of 16.18%. However, it isn’t the most reliable inflation hedge. Overall, in 14 years when inflation exceeded 4%, the price of gold beat the inflation rate in 8 of them, but had a negative return in 6. Also, the first decade of this century saw a steep rise in the price of gold in a non-inflationary environment, which makes it debatable how much near-term potential gold prices have left in them.


Bonds were the worst performers of this group in high inflation years, with an annualized return of just 4.45%. They beat inflation in just 6 of the 14 high-inflation years.


Despite beating the CPI in eight of the 14 high-inflation years, stocks trailed inflation overall during those years with an annualized return of 7.04%. Stocks have been a major beneficiary of low interest rates in recent years, so they may struggle if inflation pushes those rates higher.

The bottom line is that it is difficult for investors to find a clear win when inflation strikes. The best strategy may simply be to minimize the damage, and hang on until inflation eases.

Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).