Inflation Strategies

⚠️ DISCLAIMER: I am not a financial advisor. This is not financial advice. These are notes on a system. Do your own research.

The Inflation Problem

Inflation is a silent tax on your savings. When prices rise 3% per year and your savings account pays 0.5%, you’re losing 2.5% of your purchasing power annually.

The math: $10,000 today at 3% inflation = $7,440 purchasing power in 10 years.

You’re not getting poorer on paper. You’re getting poorer in reality.

Understanding Inflation Types

Type	Cause	Example
Demand-pull	Too much money chasing goods	Stimulus checks → spending surge
Cost-push	Production costs rise	Oil prices → everything costs more
Built-in	Wage-price spiral	Workers demand raises → prices rise → repeat

For personal finance, the cause matters less than the response. Your strategies should work regardless of inflation type.

The Inflation Protection Hierarchy

Don’t hold excess cash — Keep 3-6 months emergency fund, invest the rest
Use high-yield savings — At least keep pace with some inflation
Own productive assets — Stocks, real estate, businesses
Consider inflation-linked securities — I-Bonds, TIPS
Avoid long-term fixed-rate lending — Your bond’s 3% looks terrible when inflation hits 6%

Specific Strategies

1. I-Bonds (Best Risk-Free Option)

What: US government savings bonds that adjust for inflation.

Feature	Detail
Rate	Fixed rate + inflation adjustment (CPI)
Purchase limit	$10,000/year per SSN (electronic)
Lock-up	1 year minimum, 3-month interest penalty if redeemed before 5 years
Tax	Federal only, can defer until redemption
Where	TreasuryDirect.gov

2. TIPS (Treasury Inflation-Protected Securities)

What: Treasury bonds where principal adjusts with CPI.

Feature	Detail
Liquidity	Tradeable (unlike I-Bonds)
Purchase limit	None
Tax quirk	Pay tax on inflation adjustment annually (“phantom income”)
Best held in	Tax-advantaged accounts (401k, IRA)

When TIPS beat I-Bonds: Large amounts, need liquidity, already maxed I-Bonds.

3. Stocks (Long-Term Inflation Hedge)

Companies can raise prices with inflation. Their revenues (and your shares) grow nominally even if real growth is flat.

Sector	Inflation Performance	Why
Consumer staples	Good	People buy necessities regardless
Energy	Good	Oil/gas prices often drive inflation
Real estate (REITs)	Good	Rents adjust upward
Utilities	Mixed	Regulated pricing limits flexibility
Growth stocks	Poor	Future earnings discounted more heavily

4. Real Estate

Property values and rents tend to rise with inflation. But real estate has costs:

Pro	Con
Tangible asset	Illiquid
Rental income adjusts	Maintenance costs also inflate
Leverage amplifies gains	Leverage amplifies losses
Tax advantages	Management headaches

Alternative: REITs give real estate exposure without the landlord hassles.

5. Commodities (Speculative)

Gold, oil, agricultural products often rise with inflation. But:

No yield (gold doesn’t pay dividends)
High volatility
Storage/trading costs
Timing is nearly impossible

Verdict: Small allocation (5-10%) if any. Not a core strategy.

What NOT to Do

Don't Hoard Cash

Cash loses value every day inflation exceeds your interest rate. Keep only what you need for emergencies and near-term expenses.

Don't Panic Buy

“Inflation is high, buy gold/crypto/commodities NOW” is usually wrong. These assets are already priced for current inflation expectations.

Don't Lock in Low Rates

Avoid long-term CDs or bonds when inflation is rising. You’re locking in a loss.

Don't Over-Leverage

Yes, inflation erodes debt. No, this doesn’t mean load up on debt. The payments still have to be made.

The Practical Playbook

Emergency fund: High-yield savings (currently 4-5% APY)
First $10k beyond that: I-Bonds annually
Retirement accounts: Broad stock index funds (automatic inflation hedge)
Taxable accounts: Mix of stocks and TIPS if concerned
Review annually: Adjust based on current inflation environment

Inflation and Debt

Inflation can help borrowers—your fixed mortgage payment becomes “cheaper” in real terms as wages rise.

Debt Type	Inflation Impact
Fixed-rate mortgage	✅ Helps (payment stays same, income rises)
Variable-rate debt	❌ Hurts (rate rises with inflation)
Student loans	Mixed (depends on rate type)
Credit cards	❌ Hurts (rates rise fast)

The Bottom Line

Inflation protection is:

Essential — Cash loses value; you must invest
Simple — Stocks + I-Bonds cover most needs
Long-term — Short-term hedges are usually speculation
Automatic — A diversified portfolio already provides inflation protection

Don’t overthink it. A standard stock/bond portfolio with some I-Bonds handles inflation for most people. The goal isn’t to “beat” inflation—it’s to not lose to it.