How to Beat Stagflation in 2024: 5 Best Stagflation Investments

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Stagflation, the unwelcome combination of high inflation and stagnant economic growth, can be a nightmare for investors.

But Don’t Fret. Here are the 5 Best Investments to beat Stagflation.


When the economy is experiencing Stagflation, traditional investment strategies may not be as effective, and navigating this treacherous financial landscape may feel like walking through a minefield.

By understanding the challenges of Stagflation and making informed investment decisions, you can weather the storm and even come out ahead.

In this blog post, we’ll explore the world of Stagflation and identify some of the best investments during these trying times.

Key Takeaways

  • Stagflation is a complex economic challenge, so countercyclical investments like commodities, defensive stocks, and real estate are the best assets to invest in.
  • Diversifying your portfolio with value & cyclical stocks can help reduce risk & maximize returns during Stagflation.
  • Avoid risky investments such as growth stocks and bonds during this period.
  • Best stagflation investments: Commodities and precious metals, defensive stocks, real estate, and REITs.

What is Stagflation?

So, what exactly is Stagflation?

Put simply, it’s a situation where the economy is stagnant, and inflation is high simultaneously.

This toxic combination of slow economic growth and rising prices can pose a significant challenge for investors.

Traditional investment strategies may not yield the intended results. Stocks tend to underperform due to slow economic growth, and bond returns are diminished because of high inflation and fluctuating interest rates.

There are several economic theories about what causes Stagflation, but that goes beyond the scope of this article.

The 1970s served as a prime example of the devastating impact of Stagflation on the global economy.

Families with low or fixed incomes and retirement savers were hit the hardest during this period, as indicated by the World Bank.

Investing during Stagflation requires a countercyclical approach, focusing on assets that can help beat inflation and avoid the impact of increasing bond yields.

Best Assets to Invest in During Stagflation

In times of Stagflation, prioritizing assets like commodities, defensive stocks, and direct investments in real estate or REITs is a smart move.

These assets can provide stability and potential growth, helping you maintain healthy investment portfolios despite economic uncertainty.

We’ll examine these asset types in detail, showcasing how they help your investment portfolio during stagflation challenges.

1. Commodities and Precious Metals

Commodities like gold, oil, precious metals, and agriculture tend to perform well during Stagflation, and there are several logical explanations why:

  1. Hedge Against Inflation: Commodities like gold, oil, and agricultural products typically serve as a hedge against inflation. During stagflation, inflation rates are high, and commodities can provide a buffer against the eroding value of currency.
  2. Supply Constraints: Stagflation occurs when economic growth is stagnant, but inflation rises. In such periods, the supply of goods often becomes constrained, which can drive up the prices of commodities.
  3. Non-Correlation with Stocks: Commodities often have a low or negative correlation with stocks, making them a good diversification option. This is particularly useful during Stagflation when equities often perform poorly.
  4. Global Demand: Commodities can also be influenced by demand on a global scale. Even if a specific economy faces stagflation, global demand can increase commodity prices.
  5. Tangible Assets: Commodities are considered “real assets,” meaning they have a tangible physical form, e.g., gold coins. Real assets often perform well during inflation because their value is not just a financial abstraction.

Invesco DB Commodity Index Tracking (DBC) is an example of an exchange-traded fund that provides exposure to commodities such as energy, agriculture, and base metals. This ETF could be researched to see if it is a good Stagflation investment.

During the 1970s, commodities were a boon for investors compared to equities. The below chart shows real and nominal returns of commodities during the 1970s, which was widely known as one of the most significant periods of stagflation.

According to Kiplingers, the S&P GSCI Index, a measure of commodities investment performance, returned 586% between 1970 and 1979.

Commodity Assets during the 1970s

2. Defensive Stocks

Defensive stocks, also known as non-cyclical stocks, are those in the consumer staples and healthcare sectors, that can provide stability and potential growth during stagflationary periods.

From a quantitative perspective, defensive stocks have a beta of less than 1, meaning if the stock market falls, cyclical stocks will outperform the market, thus making them excellent stagflation investments.

There are several reasons defensive stocks are considered good investments during periods of stagflation:

  1. Stable Demand: These stocks belong to industries with relatively inelastic demand, such as healthcare, utilities, and consumer staples. Even in tough economic conditions, people still need to eat, use electricity, and seek medical care, making their demand stable.
  2. Dividend Yields: Defensive stocks often provide steady dividends. When capital gains from stocks are uncertain, these dividends offer a consistent income stream for investors making them popular during Stagflation.
  3. Lower Volatility: These stocks are generally less volatile compared to the broader market, offering some level of protection against market downturns (why are they less volatile)
  4. Cash Flow: Companies in defensive sectors often have strong and predictable cash flows. This enables them to weather economic downturns more easily compared to cyclical companies.
  5. Price Insensitivity: Consumers are less sensitive to price changes for essential goods and services. This helps maintain revenues for companies in defensive sectors during inflationary periods.
  6. Hedge Against Uncertainty: In times of economic instability or stagflation, investors often seek safer, less volatile investment options. Defensive stocks can serve as a hedge against economic uncertainty.
  7. Portfolio Diversification: Including defensive stocks in a portfolio can help in diversification, reducing the overall risk during economic downturns, including stagflation.
  8. Lower Debt Levels: Defensive companies often operate with lower levels of debt compared to cyclical companies, making them less sensitive to interest rate changes, a common occurrence in stagflation.

As indicated by a Schoreders study, utilities, and consumer staples are the best performing stocks during a Stagflationary environment.

Meanwhile, cyclical stocks such as IT and industrials are some of the worst performers during Stagflation.

Allocating funds to defensive stocks can safeguard your portfolio from the adverse impacts of Stagflation.

3. Real Estate and REITs

Real estate investments, including rental properties and publicly traded REITs, can serve as a hedge against inflation and provide reliable returns during Stagflation.

Historically, real estate has been one of the top-performing assets during Stagflation because it can offer tangible value and help protect your money from inflation.

3 Reasons why real estate and REITs make good Stagflation investments:

1. Tangible Asset: Real estate is a tangible asset, which makes it less susceptible to inflation’s erosive impact on purchasing power. The intrinsic value of property often remains stable or even increases during inflationary periods.

For example, The FTSE Nareit Index, which is a market capitalization-weighted index of U.S. equity REITs,  gained 100% in total return between 1971, when data was first available, to the end of 1981.

2. Interest Rate Sensitivity: Although stagflation often leads to higher interest rates, real estate investments that were acquired with fixed-rate mortgages can benefit from having locked-in lower payments while rental income and property values are rising.

3. Consistent Rental Income: Real estate properties can generate a steady stream of income and landlords can increase rental prices during inflationary periods, making it an ideal investment during Stagflation when other investments may be underperforming.

In addition to directly investing in real estate, investing in Real Estate Investment Trusts (REITs) can also provide exposure to the real estate market and the potential for stable returns during Stagflation.

You can invest in physical real estate through popular real estate crowdfunding platforms like Fundrise and Groundfloor. Or, invest in popular publicly-traded REITs through your online brokerage account.

4. Treasury Inflation-Protected Securities:

Another popular Stagflation investment is Treasury Inflation-Protected Securities, known as TIPS. These securities are government treasury securities that provide a real return that is linked to the Consumer Price Index, which is the widely accepted benchmark for inflation.

During times of Stagflation, you can at least get returns that are on par with inflation, thus keeping your investment portfolio protected.

You can invest in TIPs directly through the TreasuryDirect website, or through an ETF like the iShares TIPS Bond ETF.

5. Short Selling Cylical Equities

A less common way to invest during inflation is to short-sell cyclical equities. Cyclical equities are stocks of companies that produce or sell items that are considered non-essential – like an iPhone. So in times difficult economic times, individuals will be less likely to buy non-essential items like a new car, or television.

Cyclical sectors have a market beta of greater than 1, meaning they generally underperform when the stock market falls, thus presenting a short-selling opportunity.

Short selling is an investment strategy where an investor borrows shares of a stock from a broker and sells them in the open market, with the intention of buying them back later at a lower price. The goal is to profit from the decline in the stock’s price.

Here’s how it works in simple terms:

  1. Borrow Shares: The investor borrows shares of a stock they believe will decrease in value.
  2. Sell Shares: The borrowed shares are then sold in the open market at the current price.
  3. Buy Back Shares: If the stock price declines, the investor buys back the same number of shares at a lower price.
  4. Return Shares: The investor returns the borrowed shares to the broker, keeping the difference between the selling price and the buying price as profit.
  5. Risk: If the stock price increases instead of declining, the investor will incur a loss when buying back the shares at a higher price.

The strategy is considered high risk because the potential for loss is theoretically unlimited; a stock’s price can rise indefinitely, leading to mounting losses for the short seller.

Some popular cyclical stocks include Disney and Expedia.

Diversifying Your Portfolio for Stagflation

Diversification, a vital element in any successful investment strategy, is even more important during Stagflation.

Spreading your investments across various assets or asset classes can lower your portfolio’s overall risk and potentially amplify your returns.

A well-diversified portfolio that includes a mix of value and cyclical stocks can help protect your investments during Stagflation.

Value stocks, which trade at a lower price compared to their underlying fundamentals, can offer long-term growth potential during economic downturns.

Meanwhile, cyclical stocks, which follow economic cycles, can present opportunities to buy low and sell high as the economy rebounds from Stagflation.

Investing in both stock types can mitigate loss risks and boost your returns during these tough times, as stock prices may fluctuate.

Value Investing

Value investing is an investment strategy that focuses on undervalued stocks with strong fundamentals, offering long-term growth potential during economic downturns.

By identifying and investing in undervalued securities, you can take advantage of opportunities for greater returns than the general market and potentially reduce the risk associated with your investments.

Nonetheless, awareness of the risks accompanying value investing is crucial. The stock might not bounce back in value, or it could become overpriced, leading to potential losses.

Cyclical Stocks

Cyclical stocks are those that tend to follow economic cycles, with their prices impacted by changes in the economy.

These stocks usually perform well during periods of economic growth but may not do as well during recessions. However, during Stagflation, cyclical stocks can offer opportunities to buy low and sell high when the economy rebounds, potentially providing attractive returns for investors.

Allocating funds to cyclical stocks during Stagflation can be lucrative, but cognizance of the strategy’s associated risks is vital.

Investments to avoid during Stagflation

According to a recent article from the Economist, during years of high inflation, stocks and bonds performed poorly. The article highlighted that between 1900 and 2022, bond returns turned negative when inflation was above 4%.

Meanwhile, stocks also went negative when inflation rose above 7.5%. During times of stagflation, it’s paramount to steer clear of investments that could fall susceptible to stagflation.

3 investments to avoid during Stagflation:

  • Growth stocks: Often trade at high valuation multiples. so during times of Stagflation, investor sentiment often turns negative, making these high valuations difficult to sustain.
  • Bonds: Most bonds pay a fixed interest rate. During times of high inflation, interest rates tend to increase. As a result, the yield on the fixed-rate bond is not as appealing to investors, thus causing the price of the bond to fall, which makes them poor investments during stagflation.
  • Cash equivalents: They may also lose value over time due to inflation, making them less effective as a hedge against rising prices.

Instead, focus on assets that have historically performed well during Stagflation, such as commodities, defensive stocks, and real estate.

By concentrating on these types of investments, including stagflation stocks, you can minimize the risks associated with investing during Stagflation and potentially maximize your returns.

Preparing for Stagflation: Financial Planning Tips

Beyond managing your investment portfolio, other financial planning measures can be taken to brace for Stagflation.

Reducing your debt and improving your credit can help you weather the storm of Stagflation and emerge on the other side in a stronger financial position.

Maintaining a diversified portfolio, as discussed earlier, is also crucial for mitigating the risks associated with Stagflation and maximizing your returns.

By taking a proactive approach to financial planning and seeking professional investment advice, you can better prepare yourself for the challenges of Stagflation and ensure that your financial future remains secure.

Final Thoughts

Stagflation presents unique challenges for investors, but with the right strategies and a well-diversified portfolio, it’s possible to navigate these turbulent times and even come out ahead.

By focusing on assets that have historically performed well during Stagflation, such as commodities, defensive stocks, and real estate, you can protect your investments and potentially achieve attractive returns.

Diversifying your portfolio with a mix of value and cyclical stocks can further reduce risk and maximize your returns during these challenging economic conditions.

By avoiding risky investments, implementing strategies like short-selling, and seeking professional financial advice, you can prepare for Stagflation and ensure that your financial future remains secure.

Remember, the key to success in any economic environment is adaptability, so stay informed, stay agile, and keep your eyes on the prize.

Frequently Asked Questions

What shares do well in Stagflation?

Stocks such as ExxonMobil, Chevron, Pfizer, Cisco Systems, United Parcel Service, gold, energy stocks, agricultural stocks, and real estate tend to perform well during periods of Stagflation.

What is Stagflation?

Stagflation is a troubling economic situation where economic growth is low, and inflation is high, posing difficult challenges for investors.

How can I diversify my portfolio during Stagflation?

To diversify your portfolio in a stagflationary environment, invest in a mix of value and cyclical stocks to safeguard your investments and maximize returns.

What investments should I avoid during Stagflation?

In Stagflation, it’s best to avoid growth stocks, bonds, and cash equivalents. They have the potential to stay stagnant or even lose their value.

What are some strategies for navigating Stagflation?

Navigating Stagflation can be accomplished by short-selling, focusing on real assets, and investing in sectors that have shown strong performance historically.

Adam Koprucki

Expertise: Fixed-income investing, Macroeconomics, Personal Finance, Derivatives, Options, Index Funds

Professional Experience: J.P. Morgan, Deloitte Consulting, Societe Generale, The Vanguard Group

Education: Loyola University: Bachelor of Business Administration, University of North Carolina, Chapel Hill: Certificate in Capital Markets

Adam Koprucki is the founder of Real World Investor, an investing website dedicated to reviewing the newest and latest investing tools and providing unique market insights for beginner to intermediate investors.

Before starting Real World Investor, he spent over a decade working at some of the world's largest investment banks and investment managers, such as Citibank, J.P. Morgan, Societe Generale, Deloitte, and The Vanguard Group.

His experience includes working with complex financial products such as exotic interest rate derivatives, structured products, and structured credit.

A dedicated and enthusiastic investor, he is passionate about macroeconomics and options trading. His investing insights have been published on Investopedia, Yahoo Finance, Seeking Alpha, GoBankingRates, Nasdaq, and Bigger Pockets.

He is also a contributing author at