Banks

Bank of America branch building in Beaverton at twilight
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Central banks use monetary policy to tame inflation. According to the latest forecast, half of the members of the Federal Open Market Committee expect a rate hike in 2022.

In fact, rising interest rates have become a major concern for stock market investors.

But here’s something to consider: While the majority of sectors fear rising interest rates, banks adore them.

Banks make money by lending capital out at higher rates than they borrow it at. And when interest rates increase, the “spread” through which they earn widens.

Investors have already been warming up to major financial stocks.

Banking giants like JPMorgan, Bank of America, and Goldman Sachs have all returned at least 30% year to date.

Of course, that means these stocks aren’t cheap.

The good news? If you’re on the fence about jumping into bank stocks at these elevated levels, some investing apps will give you a free share of JPMorgan or Bank of America just for signing up.

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Consumer Staples

Bottles of Procter & Gamble's Tide detergent in a supermarket in New York
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Consumer staples are essential products such as food and drinks, household goods, and hygiene products.

We need these things regardless of how the economy is doing.

So even when inflation drives up input costs, consumer staple companies — particularly those with scale and distribution advantages — are able to pass those higher costs onto consumers.

Even if the biggest crash “in world history” hits, we’ll probably still see Quaker Oats and Tropicana orange juice — made by Pepsico — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known brands from Procter & Gamble — will likely remain on shopping lists across the nation.

And then there’s retail gorilla Costco, which sells thousands of consumer staples across roughly 800 warehouses worldwide. With inflation forcing consumers to hunt for lower prices, Costco’s value proposition is tough to turn down.

To be sure, these consumer staple leaders all command triple-digit stock prices.

But you can get a piece of them by using a stock trading app that allows you to buy fractions of shares with as much money as you are willing to spend.

Precious Metals

Rows of gold and silver bars with several thin bars.
Ravital/Shutterstock

Precious metals — particularly gold and silver — have helped investors preserve their purchasing power for centuries.

They can’t be printed out of thin air like fiat money.

Investors often rush toward gold in times of crisis, making it the go-to safe haven asset.

Silver is also a store of value and a hedge against inflation. At the same time, it is widely used as an industrial metal so it could also outperform in a high growth, high inflation environment.

The most direct way to play precious metals is to own bullion. But that can be difficult and expensive. An easier method is to invest in large mining companies.

Gold miners like Barrick Gold and Freeport-McMoRan typically do well during tough times for other sectors.

Meanwhile Wheaton Precious Metals and Pan American Silver can provide easy access if you’re interested in dabbling in the grey metal.

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A finer way to hedge

With the number of bitcoins capped at 21 million and its increasing adoption, the cryptocurrency could very well be a great hedge against inflation.

But of course, neither inflation-proof stocks nor Bitcoin are immune to market volatility.

If you want to invest in something that has little correlation with the ups and downs of the stock market — or the crypto market — you might want to consider an overlooked asset: fine art.

Investing in fine art by the likes of Banksy and Andy Warhol used to be an option only for the ultra-rich like Dimon.

But with a new investing platform, you can invest in iconic artworks too, just like Jeff Bezos and Peggy Guggenheim.

According to the Citi Global Art Market chart, contemporary artwork has offered a return of 14% per year over the past 25 years, easily topping the 9.5% annual return from the S&P 500.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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