These two stocks and ETFs are beating the average rate of inflation.

While inflation numbers tell the story of the ebbs and flows of the economy, the real interest lies in how some smart investments have not only survived but thrived in this environment. Stay tuned to see how easy it is.

historical inflation figures

Inflation rates in the United States are cooling after two years of soaring to historic rates. The inflation rate of 9.1% in July 2022 is the highest since the ‘great inflation’ peaked at 14.8% in 1980.

The US inflation indicator, which has now fallen back to 3.1%, is close to normal long-term levels.

The average inflation rate over the past 25 years has been 2.6%, according to data from the Bureau of Labor Statistics. Despite numerous ups and downs over time, multi-decadal levels never deviate significantly from that point. The 50-year average (including the oil crisis that lasted in the 1970s) was 4%, and the 100-year average (including the Great Crash of 1929 and World War II) was 3%.

Constant inflation severely damages your assets over time.

• $1,000 stashed under your pillow in 1999 had the same purchasing power as $1,869 today.
• The same $1,000 cash pile in 1974 would be worth $6,589 in today’s dollars.
• And $1,000 in your pocket back in the Roaring Twenties back in 1924 would be worth $17,749 in 2024 currency.

Fortunately, there are many ways to overcome the effects of inflation. This 3% cut adds up over time, but preserving your wealth with prudent investing is actually quite easy. Let’s take a look at a few seemingly boring investments that more than offset the average rate of inflation.

Beat inflation with dividends

Food and Beverage Manufacturers kraft heinz (KHC -1.92%) This doesn’t seem like a good way to protect your wealth from inflation. The stock has had negative long-term returns since its 2015 IPO, when food veterans HJ Heinz and Kraft Foods merged into a single company. The average annual price change during the Kraft Heinz era is a 7.3% loss.

However, past results are no guarantee of future returns, and apparent price fluctuations take the company’s generous dividend out of the equation. Let’s say Kraft Heinz lost enough of its stock price between 2017 and 2019, and you expect a steady return on the stock you buy today. Even if the stock trades sideways with 0% price appreciation for the foreseeable future, Kraft Heinz still beats inflation through its strong dividend payments.

The current dividend yield is 4.2%, which is actually lower than usual. Kraft Heinz has delivered an average return of 4.9% over the past five years. Either way, the 4.1% dividend yield easily offsets the average inflation pain.

So if you’re a typical income investor who is more interested in steady, generous dividend checks than share price growth, Kraft Heinz may be just what you’re looking for. Major investor Warren Buffett Berkshire Hathaway (BRK.A 0.14%) (BRK.B 0.15%) It still owns 26.5% of the company and pays quarterly dividends of $130 million.

Three of Kraft Heinz’s 12 directors work for Berkshire Hathaway or one of its subsidiaries. It’s hard to argue against a strategy that Buffett endorses. This is especially true when Berkshire’s large investments give it little influence over the company’s business strategy.

Beat inflation with ultra-stable ETFs

Buffett also likes exchange-traded funds (ETFs) that broadly track the stock market. Berkshire holds $38 million worth of ETFs. S&P 500 (^GSPC 0.55%) Market indices are evenly split. Vanguard S&P 500 ETF (flight 0.62%) and SPDR S&P 500 ETF Trust (spy 0.56%) instrument.

Now, these market-tracking index funds can’t beat inflation with dividends alone. Their annual return is just 1.4%, or about half the average annual inflation rate. But they make up for it with decades of reliable long-term returns and immediate diversification.

In the future, we will talk about the SPDR S&P 500 ETF Trust. That’s because this ETF has been around since the 1990s, and the equally solid Vanguard ETF was launched in 2010. For all intents and purposes, these ETFs are indistinguishable and either is a great investment.

A large collection of quality companies makes the S&P 500 a symbol of stability and consistent returns. Of course, there are temporary downturns during economic crises such as the bursting of the dot-com bubble, the Great Recession of 2008, and the COVID-19 pandemic with long-term ramifications. Nonetheless, the index always bounces back financially, and the ongoing trend is undeniably one of wealth accumulation.

The SPDR fund was launched in late January 1993. Since then, the fund has delivered an average annual return of 8%. Alternatively, reinvesting the dividends into more ETF shares provides a 10% return.

SPY data from YCharts.

Inflation rates have occasionally exceeded the fund’s recent returns, but in a comprehensive long-term analysis, the two metrics are completely different. This view of stable long-term investing fits well with the philosophies of some of the most respected figures in the investment world.

For example, Buffett’s long-time friend and colleague John Bogle, head of Vanguard and often considered the founder of index funds, championed the idea of ​​an ultra-stable investment strategy. Bogle’s vision of low-cost, diversified, long-term focused investing perfectly complements the essence of what ETFs like the SPDR S&P 500 can offer. His philosophy emphasizes the value of this type of investment. This is especially true in an era where beating inflation is as important to wise asset allocation as picking individual winners.