Funds That Protect Against Inflation

Russel Kinnel: Oil prices are surging, and inflation is already on the rise. Oil prices have been very volatile lately, so it’s impossible to say how much they will impact prices in six months or a year from now, but there’s certainly the potential for inflation to rise meaningfully.

If you have a lot of your portfolio in bonds, that’s bad news, so here are three suggestions for getting a little inflation protection.

Funds That Protect Against Inflation

1. Vanguard Short-Term Inflation-Protected Securities VTAPX
2. Target-Date Funds
3. Pimco Commodity Real Return Strategy PCRAX

Short-term inflation-protected bond funds are one of the best ways to hedge against an inflation spike. TIPS adjust based on the rate of inflation so that their value is protected from inflation rising. That’s different from traditional bonds that lose value because their future income streams are devalued by inflation. I like Vanguard’s Short-Term Inflation-Protected Securities Fund VTAPX, which I own in my 401(k). Tax-sheltered vehicles like 401(k)s are best for owning TIPS funds because they can throw off taxable income.

Another option you might not have thought of is target-date funds. Target-date funds are eager to protect investors from inflation, so most of the top target-date funds hold TIPS funds, especially as they near retirement date, when investors are most vulnerable to inflation.

Commodities tend to make extreme moves in inflationary environments, so a commodity fund might be useful, too. Note that, unlike TIPS funds, these funds can post very big losses or gains, so a little goes a long way. Do not make them a core holding. I like Pimco Commodity Real Return Strategy PCRAX, which I also own in my 401(k).

Watch 3 Active ETFs for 2026 and Beyond for more from Russel Kinnel.