Prepare your portfolio for inflation risk with these moves
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A recent release of economic data suggests that price pressures are starting to let up, but investors may want to prepare for the risk of higher inflation going forward. Traders received welcome news this week in the form of June's consumer price index reading , which slid 0.4% on the month. The annual rate came in at 3.5%, cooler than the 4.2% jump in May. Investors aren't out of the woods just yet. That pace remains above the 2% mark that the Federal Reserve sees as ideal, and the U.S. has launched a volley of attacks against Iran this week, which has pushed oil prices back above $80 a barrel. "The well-behaved CPI print likely lowers pressure on the Fed to hike soon, but the reignition of hostilities in Iran means the prospect of hikes is far from over," said Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management. To that end, U.S. crude futures are still up almost 23% since the Iran war started in late February, while international Brent futures have surged more than 20%. Inflation protection is important for investors as it preserves their purchasing power once they begin spending down their assets. Here are a few asset classes that can help your portfolio stave off the ill effects of inflation. Treasury inflation-protected securities "TIPS are the cleanest direct hedge [against inflation] that exists, and they're the most misunderstood," said Jeff Judge, certified financial planner at Chesapeake Financial Planners in Forest Hill, Maryland. He uses the bonds as a sliver of his clients' fixed income allocation. The principal of a TIPS bond will adjust based on inflation. It pays a set rate of interest every six months until maturity. At maturity, the investor gets the higher of the original amount invested or the inflation-adjusted price. TIPS are subject to duration risk. That means longer-dated bonds will see sharper swings in prices as interest rates fluctuate. "You have the ability to adjust how much duration you're going to take depending on which TIPS you buy, whether it's a 5-, 10- or 30-year term," said Rafia Hasan, CFA and chief investment officer of Perigon Wealth Management. Individual issues are available for purchase on TreasuryDirect.gov , but investors who'd prefer to use an exchange traded fund holding TIPS can pick one up through their brokerage. Dividend stocks Equities are one of the best ways to hedge against inflation over the long term, said certified financial planner David Gilreath, partner advisor at Allworth Financial. A Wisdom Tree analysis found that S & P 500 dividends grew by an average 5.78% per year between 1957 and 2019 — more than 2 percentage points above the rate of inflation, according to a Wisdom Tree analysis . S & P Global is forecasting that the index's dividend will jump by 6.4% in 2026. "Presuming that CPI stays below 6%, your income outpaces inflation," said Jenny Harrington, CEO of Gilman Hill Asset Management. "It really is that simple." That's something that bonds don't necessarily deliver, she said. "You have destruction of your spending power if you're getting just your bond coupons and inflation is going up," Harrington said. Three names that top her list right now are Best Buy , Bristol-Myers Squibb and Clorox . Best Buy, which trades at 12.6 times the next 12 months' price-to-earnings, is a cash-generative, well-run retailer, Harrington said. The stock currently has a 4.52% dividend yield. Bristol-Myers Squibb trades at 9.4 times the next 12 months' P/E and has a strong balance sheet and a proven drug-development track record, she said. It has a 4.14% dividend yield. Clorox yields 5.17%. Harrington pointed to its 16 times the next 12 months' P/E. She called it a "depressed consumer staples self-help story backed by category-leading brands." Meanwhile, Allworth Financial's dividend portfolio includes names like Bank of America , JPMorgan and Coca-Cola . Real estate investment trusts So-called REITs give investors access to portfolios of real estate and they pay dividends. The Vanguard Real Estate Index ETF (VNQ) currently has a 3.48% dividend yield and 0.13% expense ratio. VNQ YTD mountain Vanguard Real Estate Index ETF year to date Northwestern Mutual recently shifted its REIT allocation to neutral from underweight, and funded it by reducing fixed income exposure. "Yes, inflation potentially could come back down to 2%, but there is a good chance that it does not, at least over the intermediate term," said Matt Stucky, chief portfolio manager at Northwestern Mutual Wealth. Real estate owners can raise rents over time, which allows income to adjust with inflation, he said. Stucky sees opportunity in healthcare REITs and data centers. He also likes telecommunications infrastructure. Allworth Financial also has a REIT portfolio. It is overweight on healthcare and includes names like Welltower , Ventas and American Healthcare REIT , said Tom Kaiser, the firm's director of equity management. He also likes Simon Property Group , which continues to do "everything right on the retail side" in managing high-end malls and including experiences. Commodities Natural resources may also be another tool for investors hoping to fight inflation. To that end, funds that have invested in these types of assets are seeing a big year: the VanEck Commodity Strategy ETF (PIT) is toting a 37% advance in 2026, while the abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI) is up 22% year to date. Commodities are a diversifier to be used sparingly due to their dramatic price swings, financial advisors said. Hasan of Perigon recommends a 2% to 3% allocation toward the category at most. Another concern for investors is the tax complexity related to commodities funds. Some are structured as partnerships and hold futures contracts, which means investors receive a Schedule K-1 each year. These investors can't file their taxes until they receive this document, which details their share of income and losses.