Protect yourself from inflation with ETFs

Inflation is the persistent increase in prices over time, and it gradually reduces your purchasing power. As the economy re-opens following the COVID-19 shutdown, business and consumers have rushed to spend, pushing prices on many goods and services higher. To protect yourself from inflation, you need investments that rise faster than it does. And one way to do that is to actually own the businesses – or stock in them – that benefit from inflation.

Often the beneficiary is a high-quality business that can push on those rising prices to consumers. By owning a stake in the business – through stock or a collection of stocks in an ETF – you can benefit when your companies raise their prices. So owning stock can be a way to protect yourself from inflation.

Investors have a good choice of ETFs when it comes to hedging against inflation. Two of the best ETFs include index funds based on the Standard & Poor’s 500 index and the Nasdaq-100 index, which contain high-quality businesses listed on American exchanges:

  • Vanguard S&P 500 ETF (VOO), with an expense ratio of 0.03 percent
  • Invesco QQQ Trust (QQQ), with an expense ratio of 0.20 percent

Both are low-cost funds that give you stakes in some of the world’s best companies, helping protect you from inflation.

What to know about crypto and ETFs in 2021

Currently, there are no ETFs that allow you to invest directly in Bitcoin or other cryptocurrencies. Several companies, including Fidelity, have applied with the Securities and Exchange Commission (SEC) to offer Bitcoin ETFs, but the agency has been slow to approve them. In a recent statement, the SEC questioned whether the Bitcoin futures market could support the entry of ETFs, which aren’t able to limit additional investor assets if a fund were to become too large or dominant.

However, there are ETFs that invest in companies using the technology behind Bitcoin, known as blockchain. These ETFs hold shares in companies such as Microsoft, PayPal, Mastercard and Square. All of these companies use blockchain technology in different parts of their businesses. One thing these ETFs don’t give you is direct exposure to Bitcoin itself, but as blockchain technology continues to grow, the companies in these ETFs could benefit.

It’s unclear when or if ETFs that invest in Bitcoin or other cryptocurrencies directly will be available for purchase. It’s important to remember that cryptocurrencies are highly speculative investments and don’t produce anything for their owners. ETFs that focus on blockchain may ultimately be a safer way to profit from its future innovation.

Bottom line

ETFs can be one of the easier and safer ways for investors to get into the stock market, because they offer immediate diversification, regardless of how much you invest. To get started, you’ll want to open a brokerage account, one that’s especially focused on the needs of ETF investors.

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One thought on “Protect yourself from inflation with ETFs

  • July 27, 2021 at 10:46 am
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