Consumer prices jumped 2.9% in August 2025—the fastest pace of the year—driven in part by the Trump tariffs, which have pushed inflation expectations to 4.8%, well above the Fed’s 2% target.

For everyday investors, that raises the urgent question: how do you protect your portfolio? As Justin Wolfers, Gerald R. Ford School of Public Policy at the University of Michigan, puts it, “When inflation is high, avoid holding cash. Inflation eats away at the value of money, so when inflation starts running above a few percent a year, you should limit the amount of cash you hold.”

From equities to real estate to inflation-indexed bonds, economists and market strategists are outlining which assets can hold their ground—and which may disappoint—when inflation surges.

Inflation Is on the Rise Again

According to the World Bank’s latest Global Economic Prospects report, global inflation is projected to average 2.9% in both 2025 and 2026 before easing to 2.5% in 2027. However, this aggregate figure masks regional variations, with inflation in the U.S. increasing again after a steady decline overall since the pandemic.

For households and investors, the message is clear. Inflation is no longer something that’s a pandemic-era blip. Wolfers told Investopedia that the point made in Principles of Economics, the popular textbook he coauthored with Betsey Stevenson, former chief economist of the U.S. Department of Labor, remains crucial as prices push higher: “When inflation is high, avoid holding cash. Inflation eats away at the value of money, so when inflation starts running above a few percent a year, you should limit the amount of cash you hold.”

The task now is to think strategically about where to place capital so that purchasing power is preserved.

Where To Put Your Money When Inflation’s a Problem

1. Stocks

When it comes to beating inflation, stocks have one of the best track records. Since 1980, U.S. equities have delivered average annual returns of about 11.7%—well above the pace of rising prices. Goldman Sachs notes that stocks have consistently outpaced inflation over the long term.

Some areas of the market shine even brighter during inflationary times. Energy companies, for example, benefit when oil and gas prices climb—the very forces that drive inflation higher. Historically, energy stocks have outperformed inflation nearly three-quarters of the time, averaging close to 13% in real annual returns.

Real estate can also serve as a buffer. REITs, which let investors buy shares of a whole portfolio of different properties, have beaten inflation about two-thirds of the time with nearly 5% annual returns after adjusting for inflation. Still, experts warn that REITs don’t always behave consistently—they can act more like stocks when markets turn volatile.

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2. Commodities

A Goldman Sachs analysis of commodity prices over time suggests that a 1% unexpected increase in U.S. inflation has historically led to a 7% real return for commodities. Gold emerged as the best single commodity hedge—and its price has been spiking as inflation has risen in 2025.

However, the same research indicates commodities and gold are “the two least effective inflation hedges” when considering longer-term performance and volatility. Their findings back up common sense: different commodities do better or worse depending on the varying economic climates over time.

3. TIPS

TIPS are government bonds designed to move with inflation. Their value adjusts based on the Consumer Price Index, which means your principal grows as prices rise. In theory, that makes them one of the most straightforward ways to protect your money from losing value.

But there’s a catch: when interest rates go up, TIPS don’t always deliver strong total returns. For example, even though the principal value of TIPS has increased by more than 20% since 2020 due to inflation adjustments, many investors still felt disappointed because rising yields negatively impacted overall performance.

Still, they remain one of the safest inflation hedges available. “The government issues inflation-indexed bonds with interest payments that automatically rise with the inflation rate. These are arguably among the safest investments you can make,” Wolfers said.

Building a Portfolio That Can Withstand Inflation

There’s no “magic bullet” investment that cancels out inflation. Instead, economists say the key is balance: blending assets that tend to perform well in different environments.

TIPS can cover you on the bond side, REITs add real estate exposure, and dividend-paying stocks help boost income when prices rise. Research from the Chicago Fed shows that each of these tools works best in different “inflation regimes,” which is why diversification matters so much.

Fidelity analysts recommend spreading your bets rather than going all-in on one hedge. Their data shows that a portfolio mixing stocks, real estate, bonds, and some commodities improves your odds of keeping up with inflation—whatever shape it takes.

The Bottom Line

There’s no single investment that perfectly shields you from rising prices. The smartest strategy is to diversify—combining stocks, real estate, TIPS, and even some commodities so each plays its part. The real danger is what Wolfers, following American economist Irving Fisher, calls the “money illusion.”

In an inflationary world, protecting your purchasing power—not just growing your account balance—is the ultimate measure of success. “Whenever you’re analyzing dollar amounts—whether it’s pay raises, rosy revenue numbers, or investment returns—ask yourself whether inflation-adjusted numbers would better represent the underlying trade-offs,” he said. “Don’t be fooled by money illusion.”