SoFi

While inflation is commonly associated with the rising cost of consumer goods, inflation also impacts investments like stocks, bonds, real estate, and more.

Just as inflation can reduce a consumer’s purchasing power overall, inflation can also impact the performance of different asset classes — particularly fixed-income assets such as bonds and cash — potentially reducing portfolio returns. It’s important for investors to understand how to invest during inflation, and which assets can provide a buffer against inflationary conditions.

After all, inflation doesn’t have to spell bad news for investors. SoFi’s 2025 investor survey reveals that despite inflation concerns this year, most investors are holding steady or increasing their investment contributions.

What Is Inflation and How Does It Affect Your Investments?

Inflation is defined as a steady rise in prices. When economic growth occurs, consumers and businesses have more money and tend to spend it. When cash flows through the economy, demand for goods and services grows, leading many companies to raise prices.

To some degree, inflation is a natural outcome of a growing economy. Historically, economic booms have come with an annual inflation rate of about 1% to 2%, a range that reflects solid consumer sentiment in a growing economy.

An inflation rate of 3%, 4%, 5% or more is associated with an overheated economy.

Conversely, prices fall when demand slides and supply is abundant; the inflation rate tumbles as economic growth wanes.

Key Measures of Inflation

The main barometer of inflation in the United States is the Consumer Price Index (CPI). The CPI encompasses the retail price of goods and services in common sectors such as housing, health care, transportation, food and beverage, and education, among other economic sectors.

The Federal Reserve uses a similar index, the Personal Consumption Expenditures Price Index (PCE), in its inflation-related measurements. Economists and investors track inflation on both a monthly and an annual basis.

Because investors may have less money to put into the markets when prices rise and their budgets become tighter, inflation may impact the people’s decision to buy stocks online or through a brokerage. Overall, it means there may be less liquidity in the markets. The relationship between investing and inflation may further be affected as interest rates are increased to combat rising prices, potentially affecting business profitability.

Recommended: Stock Market Basics

How Are Investors Responding to Inflation in 2025?

When facing a period of rising prices, deciding how to invest during inflation is top of mind for many investors. But as the 2025 SoFi Investor Insights Survey shows, many investors plan to stay the course. In fact, nearly two-thirds (65%) of respondents said they feel either optimistic or content about their investments over the past year.

A Steady Approach

Despite inflation concerns, most investors are holding steady or increasing their contributions. In fact, even given the potential impact of inflation, only 19% of investors wanted to invest less, while the remaining 82% planned to invest more or maintain their current strategy, including popular investments in 2025.

Source: SoFi 2025 Investor Insights Survey

This speaks to a mindset that can be beneficial when deciding how to invest during inflation or any time, but especially after you start an investing portfolio: It’s important to stick to your strategy — which is based on your financial goals and circumstances — and not make impulsive changes to your investments when there’s a temporary shift in the economy.

Which Investments Might Perform Well During Inflation?

Investing during inflation can be tricky, and it can be helpful to have a defensive investment strategy. It’s important to know that inflation impacts both stock and bond markets, but in different ways.

Inflation and the Stock Market

Inflation can have an indirect impact on stocks, partially reflecting consumer purchasing power. As prices rise, retail investors may have less money to put into the stock market, reducing market growth.

Also, when inflation rises, that puts pressure on investors’ stock market returns to keep up with the inflation rate. For instance, consider a stock portfolio that earns 5% before inflation. If inflation rises at a 6.0% rate, hypothetically, the portfolio may actually lose 1.0% on an inflation-adjusted basis, which can make it difficult to find high inflation investments.

Perhaps more importantly, high inflation may cause the Federal Reserve to raise interest rates to cool down the economy. Higher interest rates also make stock market investments less attractive to investors, as they can get higher returns in lower-risk assets like bonds.

However, some stocks and other assets can perform well in periods of rising prices, which can be a hedge against inflation. When inflation hits the consumer economy, companies often boost the prices of their goods and services to keep profits rolling, as their cost of doing business rises at the same time. In some cases, rising prices contribute to higher revenues, which may help boost a company’s stock price.

That said, rising inflation may raise the risk of an economic slowdown or recession. That scenario doesn’t bode well for strong stock market performance, as uncertainty about the overall economy tends to curb market growth.

Recommended: How Do Interest Rates Impact Stocks?

Inflation and the Bond Market

Inflation may be a drag on bond market performance, as well. Most bonds offer a fixed rate of return, paid in the form of interest or coupon payments. As fixed-income securities offer stable, but fixed, investment returns, rising inflation can eat at those returns, further reducing the purchasing power of bond market investors.

Additionally, the Federal Reserve’s response to inflation — higher interest rates — can lower the price of bonds because there is an inverse relationship between bond yields and bond prices. So, bond investors and bond funds may experience losses because of high interest rates.

What to Consider Investing in During Inflation

Investors can take several steps to help protect their portfolios during periods of high inflation. Choosing how to invest during inflation is like selecting investments at any other time — you’ll need to evaluate the asset itself and how it fits into your overall portfolio strategy both now and in the future.

1. Real Estate and REITs

In some cases, investing in certain types of real property assets and real estate investment trusts (REITs) can be useful during inflationary periods, because this alternative asset class tends to move in the opposite direction of stocks (which may suffer during inflation).

REITs and some types of real estate tend to see higher prices at these times, and thus pay higher dividends or income to investors. REITs are required to pay 90% of their income as dividends.

2. Stocks in Companies With Pricing Power

Investors might consider stocks where the underlying company can boost prices in times of rising inflation. Retail stocks, like big box stores or discount retailers with a global brand and a massive customer base, can be potential investments during high inflation periods. In that scenario, the retailer could raise prices and not only cover the cost of rising inflation but also continue to earn profits in a high inflation period.

Think of a consumer goods manufacturer that already has a healthy portion of the market for certain everyday items, and doesn’t need excess capital as it’s already well-invested in its own business. Companies with low capital needs tend to do better in inflationary periods, as they don’t have to invest more cash into the business to keep up with competitors — they already have a solid market position and the means to produce and market their products.

During periods of inflation, popular investing trends may reflect increased interest in retail or consumer staple stocks.

3. Commodities

Investing in precious metals, oil and gas, and other commodities may also be considered for and an option for inflation hedges. The price growth of many commodities contributes to high inflation. So investors may see returns by investing in commodities during high inflationary periods.

Take the price of oil, natural gas, and gasoline. Businesses and consumers rely highly on oil and gas and will likely keep filling up the tank and heating their homes, even if they have to pay higher prices. That helps make oil — and other commodities — an asset worth considering when inflation is on the move.

4. Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) can be an option to hedge against inflation. By design, TIPS are like most bonds that pay investors a fixed rate twice annually. They’re also protected against inflation as the principal amount of the securities is adjusted for inflation.

5. I Bonds

During periods of high inflation, investors may consider investing in Series I Savings Bonds, commonly known as I Bonds. I Bonds are indexed to inflation like TIPS, but the interest rate paid to investors is adjustable. With an I bond, investors earn both a fixed interest rate and a rate that changes with inflation. The U.S. Treasury sets the inflation-adjusted interest rate on I Bonds twice a year.

General Strategies for Investing in an Inflationary Environment

Aside from considering some of the above investments when investing for inflation, there are some strategies that may also be beneficial to consider.

Stay Focused on Your Long-Term, Diversified Plan

While there are some investing strategies that are exclusively focused on short-term results, most investors plan to invest for the long term — an approach that allows for greater stability over time.

An important tenet of long-term investing is to “buy and hold” investments so they have a chance to grow over the target period of time, weathering the markets’ ups and downs. This approach enables investors to maintain a plan that’s based on their financial values, and which matches their circumstances and helps them reach their goals. It also helps investors avoid making needless changes out of fear or other market reactions.

Another component of a long-term investment strategy is to employ the principles of diversification, which means holding a range of different asset types in your portfolio, in order to help manage risk factors.

Consider Dollar-Cost Averaging to Manage Volatility

Dollar-cost averaging is a strategy that helps manage price volatility, which can be a factor during an inflationary period. With DCA, you pick the securities you want to invest in, and the dollar amount you want to invest on a regular basis (e.g., weekly, monthly, etc.). Typically, people invest the same amount each time, to end up buying more when prices are lower — and less when they’re higher.

Over time, however, the average cost of investments tends to be lower, which may yield potential returns.

Using the DCA method may keep your investment strategy on track — and investors may be less likely to react impulsively or emotionally in response to certain events or headlines, which can increase the risk of loss.

The Takeaway

Investors may want to proceed with caution when inflation rises. It may be tempting to readjust your portfolio because prices are rising. Periods of high inflation usually wane, so throwing a long-term investment plan out the window just because inflation is moving upward may knock you off course to meet your long-term financial goals.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Which investments tend to perform poorly during inflation?

Inflation erodes the value of cash, and as such it can impact a range of securities, including long-term fixed-rate bonds, certain types of stocks, and cash as well as low-interest cash accounts.

Are investors making impulsive decisions in 2025?

The tendency to make impulsive choices can occur at any time. According to SoFi’s 2025 investor survey, however, it does seem that the majority of investors are staying the course.

Is gold a good hedge against inflation?

Some investors believe that gold can be a way to hedge against inflation, because gold has intrinsic (i.e., tangible) value, a limited supply, and the price of gold has been known to rise when inflation-wary investors put more money into this precious metal. That said, the price of gold can fluctuate, and there is always a risk with any investment.

Should I stop investing when inflation is high?

Historically, many long-term investors maintain their established strategy during periods of high inflation. Some investors may consider defensive positions, such as rotating into inflation-protected assets or consumer staples, depending on their risk tolerance.

How can interest rate changes by the Fed affect my investments?

When the Federal Reserve raises or lowers interest rates, that can impact stocks and bonds in different ways. When the Fed lowers rates, that lowers the cost of loans, which can boost company performance and stock prices. Bonds with lower yields may be less appealing. When the Fed raises rates, that increases borrowing costs, which can put a damper on stocks, but raise bond yields.

Photo credit: iStock/pondsaksit