Inflation. It’s the silent wealth killer that eats away at your purchasing power while making everything—from your morning coffee to your investment portfolio—more expensive. And unless you’ve been living off the grid, you’ve probably noticed that inflation has been sticking around longer than anyone would like.

The Consumer Price Index (CPI) rose 2.8% year over year in February 2025, with categories like food, medical care, and auto insurance continuing to climb. While that doesn’t sound catastrophic, inflation compounds over time, meaning your money buys less and less every year. And that directly affects your investments.

So, how exactly does inflation impact your portfolio, and what can you do to hedge against it? Let’s break it down.

How Inflation Impacts Stocks

Stocks tend to have a love-hate relationship with inflation. Some companies benefit, while others struggle.

Winners:

• Companies with pricing power – Think of companies like Apple or Microsoft that can raise prices without losing customers. When inflation rises, they pass the higher costs onto consumers, protecting their profit margins.

• Commodity producers – Energy, metals, and agricultural companies often thrive during inflationary periods since the raw materials they sell rise in price.

Losers:

• Growth stocks – High-growth companies rely on future earnings, and inflation devalues those earnings. That’s why tech stocks often suffer when inflation spikes.

• Companies with high costs and low pricing power – If a company can’t pass on rising costs to customers, its profits shrink. Retailers, restaurants, and airlines often get hit hard.

What You Can Do:

• Invest in sectors that benefit from inflation – Energy, commodities, and industrials tend to perform well.

• Look for companies with strong pricing power – Brands that people are willing to pay a premium for can weather inflation better.

• Be cautious with high-growth stocks – If inflation stays high, tech and speculative stocks may struggle.

How Inflation Impacts Bonds

If stocks have a love-hate relationship with inflation, bonds have an outright toxic one.

Here’s why: Bonds pay fixed interest payments, so when inflation rises, the purchasing power of those payments declines. If you hold a bond that pays 3% interest but inflation is at 4%, you’re actually losing money in real terms.

What You Can Do:

• Consider Treasury Inflation-Protected Securities (TIPS) – These bonds adjust with inflation, so they maintain their real value.

• Opt for shorter-duration bonds – Shorter-term bonds are less sensitive to rising interest rates and inflation.

• Diversify into other asset classes – Real estate and commodities can help offset bond losses.

How Inflation Impacts Real Estate

Real estate is often seen as a natural inflation hedge—and for good reason. When inflation rises, so do home prices and rents, helping real estate investors maintain their purchasing power.

But not all real estate investments are created equal.

Winners:

• Rental properties – Landlords can increase rents to keep pace with inflation.

• Real estate investment trusts (REITs) – Many REITs own properties in sectors like industrial, retail, and apartments, which benefit from rising rents.

Losers:

• Fixed-rate mortgage holders (in the short term) – Higher inflation usually leads to higher interest rates, making new mortgages more expensive.

What You Can Do:

• Invest in REITs that focus on inflation-resistant sectors – Industrial, self-storage, and apartment REITs tend to do well.

• If you own real estate, consider locking in a low mortgage rate – If inflation leads to higher interest rates, a low fixed-rate mortgage becomes an asset.

How to Inflation-Proof Your Portfolio

Inflation is unavoidable, but you can take steps to protect and grow your wealth despite rising prices.

1. Diversify Across Asset Classes

Don’t put all your eggs in one basket. A mix of stocks, bonds, real estate, and commodities can help smooth out the impact of inflation.

2. Invest in Hard Assets

Physical assets like gold, silver, and real estate tend to hold their value better when inflation spikes.

3. Consider Inflation-Protected Securities

TIPS and commodities can provide direct inflation protection.

4. Look for Dividend Stocks

Companies that pay consistent, growing dividends often outperform during inflationary periods.

5. Avoid Holding Too Much Cash

Cash loses value when inflation rises. Keeping enough for emergencies is smart, but investing excess cash is crucial to staying ahead of inflation.

Final Thoughts

Inflation isn’t going anywhere, and while it creates challenges, it also presents opportunities. By understanding how different asset classes react to inflation and adjusting your strategy accordingly, you can protect your wealth and even find ways to profit.

The key? Stay diversified, stay invested, and adapt to changing market conditions.

Disclaimer: The information presented is for educational purposes only and not an offer or solicitation for any specific investments. Investments involve risk and are not guaranteed. Consult with a financial adviser before making any investment decisions. Past performance does not guarantee future results.