Inflation is a growing concern in 2025, impacting everything from grocery bills to gas prices, and affecting your investments. As prices rise, it’s essential to find ways to protect your wealth and earn returns despite inflation. One of the best strategies to hedge against inflation is investing in Exchange-Traded Funds (ETFs). These funds typically focus on sectors and assets that tend to perform well during inflation, like commodities, real estate, and inflation-protected bonds. In this article, we’ll explore some of the top-performing ETFs in 2025 that are designed to help you navigate inflation and safeguard your financial future.
What Are Inflation-Hedging ETFs?
Inflation-hedging ETFs are designed to combat the impact of rising prices by investing in assets that typically thrive when inflation is high. These can include commodities, real estate investment trusts (REITs), and inflation-linked bonds like TIPS. These ETFs aim to provide investors with stable returns by focusing on asset classes that tend to grow in value or yield higher income as inflation rises. The right ETF can be a powerful tool to protect your portfolio from inflation’s erosive effects.
Best ETFs to Invest in During Inflation (2025)
1. SPDR Gold Shares (GLD)
When it comes to protecting wealth during inflation, gold is a tried-and-true asset. The SPDR Gold Shares (GLD) ETF tracks the price of gold bullion, providing investors with direct exposure to the precious metal. Historically, gold has acted as a safe haven during periods of rising inflation because its value tends to increase when the purchasing power of fiat currencies decreases. If you’re looking to shield your portfolio from inflation, GLD is a classic choice.
2. iShares TIPS Bond ETF (TIP)
Treasury Inflation-Protected Securities (TIPS) are one of the most reliable ways to safeguard against inflation. The iShares TIPS Bond ETF (TIP) invests directly in TIPS, which are U.S. government bonds designed to adjust with inflation. As the Consumer Price Index (CPI) increases, the principal value of TIPS rises, providing you with both income and inflation protection. This ETF is a solid option for those looking for stability and income during inflationary periods.
3. Vanguard Real Estate ETF (VNQ)
Real estate is another sector that traditionally performs well in inflationary environments. The Vanguard Real Estate ETF (VNQ) provides exposure to real estate investment trusts (REITs), which own and manage income-producing properties. As inflation pushes up rents and property values, REITs tend to benefit from higher rental income and appreciating asset values. VNQ offers investors a way to capitalize on the potential rise in real estate values during inflation.
4. Invesco DB Commodity Index Tracking Fund (DBC)
When inflation heats up, commodities often follow suit. The Invesco DB Commodity Index Tracking Fund (DBC) is a great choice for investors looking to gain exposure to a broad range of commodities, including energy, agriculture, and metals. Commodity prices tend to rise when inflation accelerates, and DBC gives you access to those price increases through an ETF that tracks commodity futures.
5. Schwab U.S. Dividend Equity ETF (SCHD)
High-quality dividend-paying stocks are another effective hedge against inflation. The Schwab U.S. Dividend Equity ETF (SCHD) focuses on U.S. companies with a strong history of paying dividends. Dividend-paying companies are often in sectors like consumer staples, healthcare, and utilities, all of which are known to perform relatively well during inflation. SCHD’s focus on steady income and growth makes it a solid choice for those seeking both protection and returns in an inflationary climate.
6. iShares MSCI ACWI ex U.S. ETF (ACWX)
Inflation isn’t just a U.S. issue—it’s a global phenomenon. The iShares MSCI ACWI ex U.S. ETF (ACWX) offers exposure to international stocks outside the U.S., which can help diversify your portfolio and protect against domestic inflation. By investing in developed and emerging markets, this ETF allows you to tap into potential growth areas that may be less correlated to U.S. inflation. If you’re looking for global diversification alongside inflation protection, ACWX is an option worth considering.
Why ETFs Are a Smart Choice During Inflation
ETFs are an excellent vehicle for hedging against inflation because they offer:
- Diversification: ETFs typically hold a wide range of assets within a single fund, reducing the risks tied to individual investments.
- Liquidity: ETFs are traded like stocks, meaning they can be easily bought or sold throughout the trading day.
- Low Costs: Compared to actively managed funds, ETFs tend to have lower expense ratios, which means more of your money goes into the underlying assets, rather than fees.
These factors make ETFs a cost-effective and convenient way to protect your investments from inflation’s impact.
How to Choose the Right Inflation-Hedging ETFs?
When selecting an ETF to hedge against inflation, consider the following factors:
- Yield: Look for ETFs that offer a competitive yield, especially if you want to generate income while protecting against inflation.
- Expense Ratio: Lower expenses mean higher returns. Opt for ETFs with a low expense ratio to maximize your investment.
- Asset Allocation: Ensure the ETF is investing in sectors that benefit from inflation, such as real estate, commodities, or TIPS.
- Risk Tolerance: Some inflation-hedging ETFs, such as those focused on commodities, can be more volatile. Make sure the ETF aligns with your overall risk tolerance.
Conclusion
Inflation may be a challenge for investors in 2025, but by strategically allocating your funds into inflation-hedging ETFs, you can protect your wealth and even earn higher returns. Whether it’s through the stability of gold, the safety of TIPS, or the potential of commodities and real estate, these top ETFs offer a variety of options to help you navigate inflation with confidence. Remember to review each ETF’s performance, assess your personal financial goals, and consult a financial advisor to create a tailored strategy that works for you.