These inflation-protected plays can help investors manage the impact of higher prices
War in Iran and surging oil prices are stoking investors’ fears that inflation is ticking higher, and the impact could go well beyond merely paying more to fill your gas tank. Oil prices took another leg higher on Thursday even as President Donald Trump said that Iran allowed 10 oil ships to travel in the Strait of Hormuz as a “present” to the U.S. The status of negotiations between Washington and Tehran remains shaky, as Iranian state media reported Wednesday that the Middle Eastern nation would reject a U.S. ceasefire and detailed its own conditions for ending the war. Since the conflict started, Brent crude oil futures have gained nearly 50%, while West Texas Intermediate crude futures have surged 41%. “The risk doesn’t just lie with me and you going to the pump to fill up our cars,” said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. Rising fuel costs, higher energy bills and even food insecurity are just a few of the issues that can plague consumers if the war continues. “We expect inflation to increase from here, and most indicators, though they’re off the 2022 highs, have been hovering above the [Federal Reserve’s] 2% target for nearly five years now,” Martin added. Inflation is especially worrisome for investors who are nearing retirement, as it erodes their purchasing power. However, there are a few steps they can take to protect their portfolio. Inflation-linked bonds How you tackle the problem of inflation in your portfolio will depend on your time horizon and risk appetite. The problem is more acute for savers who expect to draw down from their portfolio soon. That’s where Treasury inflation-protected securities, or TIPS, come in. These fixed income securities can be sold for terms of five, 10 or 30 years, and their principal value fluctuates based on inflation. At maturity, you get back the greater of the amount you invested or the inflation-adjusted principal. Inflation-linked bond ETFs had seen flows of $600 million as of mid-March, according to State Street Investment Management, and the funds are on pace to have garnered inflows for 12 months out of the last 13. “What we’ve seen is that inflation has been stubbornly above the Fed’s preferred threshold and now you have this shock to the system that is sending short-term inflation expectations rising,” said Matt Bartolini, global head of research strategists at State Street Investment Management. TIPS come with their own set of risks, however. They are bonds, and you can still see price fluctuations if they’re held in funds. This is less of an issue for investors who buy individual securities – be it through their brokerage or through the federal government’s TreasuryDirect website. Commodities In addition to oil, natural gas has also jumped since the Iran war started, and it’s up more than 4% in that period. Investors are taking notice, with broad commodity ETFs garnering $2 billion of inflows in the past three months, according to State Street. “The companies that pull the commodities out of the ground, their price is influenced by the commodities’ price,” said Alex Shahidi, CFP and co-chief investment officer at Evoke. Be aware of the structure of your commodities ETF, as the structure of the fund and the holdings can determine its tax treatment. If you have an ETF that’s backed by physical holdings and sell it after more than a year of owning it, you could face a long-term capital gains rate of 28%. That’s higher than the long-term capital gains rate of 0%, 15% or 20% that you’d face if you sold any other asset. GUNR YTD mountain The FlexShares Morningstar Global Upstream Natural Resources Index Fund in 2026 Other commodities funds have futures contracts in them and can be structured as partnerships. This means the investors get a Schedule K-1 each year, which will detail their share of income and losses. You can’t file your income tax return until you get this K-1. Work with your financial advisor to determine how much exposure is appropriate for you and your goals. “Commodities tend to be a pretty volatile asset class,” said Rafia Hasan, certified financial planner and chief investment officer at Perigon Wealth Management. Consider that gold , a safe haven asset and a favorite hedge for many investors, has tumbled more than 16% since the war started. “It can be a risky proposition,” she added. “I would be comfortable with up to a 5% allocation.” Got time? Stick with stocks Sticking with stocks is the ticket for younger investors who won’t need their savings for many years. “In 2022, one of the concerns was around growth and the stagflationary environment – equities didn’t do well then, but real assets, commodities and [Treasury Inflation-Protected Securities, or TIPS] were better hedges,” said Hasan. “But longer term? Stocks tend to do pretty well in an inflationary environment, and they’re a good asset class to have,” she added. In fact, investors with long time horizons might even consider bumping up their contribution rate to their 401(k) plan, said Amy Arnott, portfolio strategist at Morningstar.
<
