Amid surging inflation and rising interest rates, many investors have likely considered adding gold to their retirement portfolio. The yellow metal is often touted as a good inflation hedge. However, I believe S&P/ASX 200 Index (ASX: XJO) shares could give better protection against the cash-eating measure.
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The importance of inflation hedges
Considering the long-term impacts of inflation is an important part of investing for retirement.
Inflation lessens the value of cash. Meaning, what might be a substantial retirement portfolio now, may not stretch as far in the years to come.
That's why I think it's worthwhile to consider investing in inflation hedges. Inflation hedges are assets either immune from inflation or capable of growing in value faster than the inflation rate.
One asset often said to house the former quality is gold. The price of gold recently reached an eight-month-high of around US$1,880 an ounce, potentially partially driven by rising demand for its inflation-busting qualities.
However, gold presents what's known as an opportunity cost. Unlike other investments, it doesn't pay dividends or interest.
And that's one reason why I'd turn to ASX 200 shares over gold when building a retirement portfolio.
I'd invest in ASX 200 shares over gold for retirement
While ASX 200 shares generally bring greater risk than gold, they offer a key opportunity – compounding. Many stocks that call the index home pay dividends.
By reinvesting these dividends, a future retiree can compound their investments, thereby potentially growing them at a faster rate than they otherwise might.
Such dividends, alongside potential share price gains, offer the potential for an investor to realise gains at a faster rate than inflation. Thus, ASX 200 shares can act as an inflation hedge.
Additionally, the index houses many of the market's blue-chip shares.
Blue chip stocks offer exposure to the largest, longest-standing companies. They often boast strong balance sheets, solid earnings records, and loyal customer bases.
Thus, they typically represent a lower-risk investment than, say, growth shares. Such a quality may be important for those building a portfolio designed to last the length of their retirement.
Finally, while gold is trading at around eight-month highs, 2022's downturn has likely left many ASX 200 shares trading below their fair value.
That means there are likely plenty of bargain buys out there right now, potentially offering a greater opportunity to realise gains.
Though, no investment – whether it be in gold or stocks – can be guaranteed to provide returns or hold its value. Further, past performance doesn't guarantee future performance.
