AI Business Systems6 min read

7 Inflation Investments: What Actually Worked in 2023

I beat the market during peak inflation using these 7 assets. Here's what returned 79%, what flopped, and what most investors get wrong about gold.

Inflation is making me rich. That's not a brag, it's the result of putting money into the right seven assets while most investors watched their portfolios drop 20% with the S&P 500.

Here's what I actually invested in, what each one returned, and where conventional wisdom on inflation investing is flat wrong.

Why the Stock Market Dropped in the First Place#

Before getting to the picks: the Federal Reserve fights inflation by raising interest rates. Higher rates increase borrowing costs, slow demand, slow the economy, and in theory bring prices down. That process, quantitative tightening, is also what tanks stock prices. Higher borrowing costs compress corporate earnings and make bonds more attractive relative to equities. The S&P dropped roughly 20% year-to-date through late 2022. That's the environment these seven investments were tested in.

The 7 Inflation Investments, Ranked by What Actually Happened#

1. I Bonds, Safest Play, Real Constraints#

I bonds are U.S. government savings bonds that adjust their interest rate every six months based on current inflation. The principal is fixed, you can't lose what you put in. During peak inflation, the rate hit 9.62%. For a guaranteed, government-backed return, that's extraordinary.

But there are two things to understand before buying. First, the rate is variable and can drop to zero. You're guaranteed not to lose principal, but if inflation falls and rates follow, the real return shrinks. Second, you can't cash out for at least one year after purchase, and for the four years after that, early redemption costs you three months of interest. Think of it like a CD with an inflation-linked rate.

For my time horizon, those lock-in terms are fine. If inflation persists for a few years, which I expect, I bonds remain one of the cleanest risk-adjusted plays available.

2. TIPS, Inflation Protection, Not a Growth Asset#

Treasury Inflation-Protected Securities adjust their par value annually to track inflation, which boosts your interest payments and can deliver some price appreciation. The key distinction: TIPS hedge against inflation, but not against bond market downturns.

In 2022, TIPS dropped roughly 13% year-to-date. That sounds bad until you compare it to the S&P's 20% decline. You can buy TIPS directly through a brokerage or via ETFs like TIP or SCHP. They're not a way to grow wealth, they're a way to preserve it when inflation is running hot and bonds are getting crushed less than equities.

3. Commodities, Highest Return, Highest Risk#

This is where I made most of my money. A commodity ETF called DBC returned 79% during this inflationary spike, driven primarily by spiking oil prices alongside broader commodity price increases across metals, soybeans, and other raw materials.

Commodities rise during inflation because the underlying goods cost more to produce and buy, the ETF tracks that directly. But the same volatility that produces a 79% gain can reverse fast. If oil prices drop, so does DBC. I'm considering taking some profits and not adding to this position, because this is a tactical play with a clear exit condition, not a long-term hold.

4. Gold, The Hedge That Didn't Hedge#

Gold is the inflation investment everyone recommends. I bought in before this inflationary period. It dropped 5%.

That's still better than the stock market's 20% decline, but I expected a positive return. The honest assessment: gold returns are essentially random. There's no reliable way to determine what gold should be worth at any given moment, and timing it correctly is genuinely difficult. The 5% loss during one of the highest inflation periods in decades should make you skeptical of anyone who tells you gold is a reliable inflation hedge.

I'm not selling my position, but I'm not adding to it either.

5. Real Estate, Popular, But Rate-Sensitive Right Now#

Real estate held up well during the persistent inflation of the 1970s, which is why it has a reputation as an inflation hedge. The logic is sound: property values and rental income tend to rise with inflation. You can invest directly or through REITs and specialized funds.

The problem in 2022 and beyond is interest rates. Rising rates increase mortgage costs, suppress demand, and can compress property values, the same dynamic that caused the 2007-2008 crisis. With the Fed actively raising rates, real estate is caught between its inflation-hedge properties and its rate sensitivity. I'm staying away from U.S. real estate for now and focusing elsewhere.

6. Stocks and Index Funds, Still the Base Strategy#

Stocks are a long-term inflation hedge, but they suffer in the short term when inflation spikes hard. The S&P's 20% drop is evidence of that.

Despite the short-term pain, dollar-cost averaging into index funds remains the right base strategy for probably 95% of investors. I kept doing it throughout this period. If you want to know which stocks perform well during inflation specifically, I covered that in a separate piece on which stocks perform well during inflation, the sector picks matter more than the broad market during inflationary spikes.

7. Cash, The Overlooked Option#

Cash is not a growth asset. But during inflation accompanied by rising short-term interest rates, cash in high-yield savings accounts, money market accounts, or CDs can roughly keep pace with inflation in nominal terms.

More importantly, cash gives you optionality. When markets are volatile and assets are getting cheap, having dry powder means you can move quickly. I keep six to nine months of expenses in cash for a single-income household, plus additional cash specifically earmarked for upcoming investment opportunities.

What This Actually Means for Your Portfolio#

The inflation-specific plays, I bonds, TIPS, commodities, are tactical overlays, not replacements for your base strategy. My investment horizon is 20 to 30 years. In that context, a market drop is a buying opportunity, not a reason to panic and sell.

The assets most people reach for during inflation (gold, real estate) are exactly the ones that disappointed this cycle. The less glamorous options (I bonds at 9.62%, TIPS cushioning a bond market decline, commodity ETFs riding raw material prices) held up or delivered real returns.

Stick to your strategy. Add the tactical plays on top. Don't let a volatile year convince you to blow up a plan that works over decades.

Watch the full video on YouTube: https://youtu.be/XZv2EVt0A34

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