How to protect your eToro portfolio from rising inflation?

Inflation fears often dominate financial news headlines, especially as the world recovers from the global pandemic. The lurking threat of rising inflation can impact your trading and investment decisions. So, how can you protect your eToro portfolio from the pitfalls of inflation? Read on to discover top-notch strategies and insights!

What is Inflation, and How Does it Affect Your eToro Portfolio? 📈

Inflation measures the rate at which prices change within an economy. As an investor on eToro, inflation can erode the real value of your portfolio, diminish your total returns, and lead to higher interest rates. Thus, it’s crucial to find assets that can potentially outperform the market during inflationary periods. Let’s dive deeper into some of these asset classes!

Commodities: A Popular Inflation-Hedging Choice 🌾

Metals and Agricultural Goods: The Basics 😉

eToro offers a wide range of commodities, such as metals and basic agricultural goods like sugar and wheat. These assets can provide an opportunity to outperform the market during inflation, but be cautious; commodities are volatile and require a solid understanding of trading basics and risk management tools.

Gold: The Classic Inflation Hedge 🥇

Gold is often considered an alternative currency and an inflation hedge. eToro allows you to invest in gold through CFDs, ETFs, and stocks of gold-mining companies. Additionally, eToro offers Gold and Energy-oriented CopyPortfolios for broader exposure to the gold sector.

How does one add gold to their eToro portfolio? There are several possibilities:

• Through CFDs, and although they do not provide you with the actual ownership of the asset, but offer a direct exposure to it and allows you to open both a long and short position. Please remember that CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
• Investing through Exchange traded funds (ETFs); eToro offers several ETFs that focus on a broad exposure to various commodities and also specific ones such as gold, like shown on the image below; please bear in mind that the below asset was chosen for exemplary purpose and does not actually constitute an investment advice.

• Apart from investing into gold directly eToro also allows you to invest into stocks of companies that actually mine it as their value increases in line with the rising prices of gold and other metals.
• eToro also offers a Gold and Energy oriented CopyPortfolio that offers exposure to a wide variety of assets from the energy and gold sectors in a ready-made portfolio that is frequently monitored and re-balanced, like on the image below. Remember that past performance is not an indication of future results and these products do not guarantee a positive return.

Oil: Another Potential Inflation Hedge 🛢️

Oil is central to economic activity and is often used for hedging inflation. eToro enables investing in oil through CFDs, stocks of oil-producing companies, and energy and oil-oriented CopyPortfolios.

How can you invest into oil on the eToro platform? In many ways these methods are very similar to investing into gold:

• Purchasing the asset directly through CFDs, allowing you to open both long and short positions. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
• Investing into stocks of companies that produce oil as they tend to fluctuate alongside actual oil prices (so if oil prices rise, prices of equity of oil-producing companies tend to rise likewise because they are now generating more success). However, this approach now also exposes you to risks associated with investing into that specific company i.e. company-specific risk.
• eToro offers energy and oil oriented CopyPortfolios, ready-made financial product that combines stocks of oil-producing companies, related ETFs and futures. These products offer additional diversification as they reduce asset-specific risk by spreading investment over a larger number of instruments.

Bank Stocks: Benefiting from Inflation and Higher Interest Rates 💹

Banks can benefit from higher success during inflation and increased interest rates. eToro offers stocks of various banks, as well as a Bank-oriented CopyPortfolio for diversified exposure.

Real Estate Investment Trusts (REITs): Real Estate Exposure for Inflation Protection 🏠

Real estate investments have historically offered a hedge against inflation. REITs allow you to invest in real estate without directly owning property. eToro provides various REIT options, including those focused on residential, commercial, and industrial properties, as well as diversified REITs.

Dividend Stocks: Consistent Income during Inflationary Periods 💸

Dividend-paying stocks can provide consistent income and offer potential capital appreciation during inflationary periods. eToro offers access to numerous dividend-paying stocks and CopyPortfolios focused on dividends, helping you add reliable income sources to your portfolio.

Cryptocurrencies: A Modern Alternative for Inflation Protection? ₿

Cryptocurrencies, like Bitcoin, have gained traction as a potential inflation hedge. However, they’re highly volatile and subject to regulatory risks. eToro offers multiple cryptocurrency investment options, including individual coins, cryptocurrency-focused CopyPortfolios, and stocks of blockchain-related companies.

Inflation-Protected Bonds: A Defensive Approach to Inflation 🛡️

Inflation-protected bonds, such as Treasury Inflation-Protected Securities (TIPS), offer principal and interest payments that adjust with inflation. While eToro does not currently offer direct access to TIPS, you can invest in ETFs that hold these bonds to add a layer of inflation protection to your portfolio.

Conclusion: Diversify and Stay Informed 🌐

Protecting your eToro portfolio from inflation requires a well-rounded strategy that includes diversification, continuous learning, and staying informed about market trends. Consider incorporating various asset classes, like commodities, bank stocks, REITs, dividend stocks, cryptocurrencies, and inflation-protected bonds, to create a robust and resilient portfolio.

Remember that each investment carries its own set of risks, so it’s essential to conduct thorough research and use eToro’s educational resources and risk management tools to make informed decisions.

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GENERAL RISK WARNING

• ▸eToro is a multi-asset platform that offers: Stocks, Crypto assets, and CFDs.
• ▸CFDs are complicated and can make you lose money quickly because of leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. Think about if you understand how CFDs work and if you can afford to take the risk of losing your money.
• ▸Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
• ▸Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
• ▸Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
• ▸eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

Be warned!

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Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/