What Assets Do Well In Stagflation?

Part of Buying Real Estate During Recession: What You Need to Know

Table of Contents

1. Is Stagflation Good for Gold?
2. What Assets do well in stagflation?
3. What Investments did well in the 1970s?
4. What Happens to Real Estate During Stagflation?
5. How to Invest During Stagflation
6. Frequently Asked Questions About Stagflation
7. Assets that do well during Stagflation - Conclusion
8. Sources

Stagflation is the specific macroeconomic condition where inflation runs above target while real growth stalls and unemployment rises — a combination that breaks the standard playbook for most diversified portfolios because the assets that usually hedge inflation (equities, growth stocks, long-duration bonds) typically underperform when the economy is contracting. Knowing what assets do well in stagflation matters because the default allocation that works in expansion or in a clean recession does not survive intact in this environment.

For multifamily LPs, the relevant operator question is whether apartment cash flows hold up when rents are rising but tenant wages and employment are softening at the same time. The answer over multiple historical episodes — including the 1970s, the partial-stagflation window of the late 2000s, and the 2021–2023 inflation spike that did not technically meet the full stagflation definition — is that institutional multifamily has held up better than nearly every paper-asset alternative, but the reasons are operational rather than mystical, and the operating-expense side of the equation matters more than the rent-growth side most coverage acknowledges.

This guide walks through which assets actually performed in past stagflation episodes, why the apartment-as-inflation-hedge claim has empirical support, where the operating-expense pressure points show up at the property level, and what an LP should actually be watching for in sponsor reporting when inflation runs above target for an extended period.

Is Stagflation Good for Gold?

Gold has done well in some stagflation episodes and meaningfully underperformed in others, which makes the “is gold a stagflation hedge” question more nuanced than the headline 1970s number suggests. The reference point most cited is the 1970s run from $35 per ounce in 1971 to $850 by January 1980 — a roughly 2,300% gain. The complication is that the bulk of that move was driven by the Nixon administration's decision to end gold-dollar convertibility in 1971, the two oil shocks in 1973 and 1979, and the loss of confidence in U.S. monetary policy under successive Fed chairs — not by some general gold-stagflation correlation that can be relied on in future episodes.

The 2008–2011 partial-stagflation window saw gold roughly triple, while the 2021–2023 inflation episode produced a more modest gold response — the metal was essentially flat in real terms through the worst of the post-pandemic inflation spike, only rallying meaningfully after 2024 when geopolitical and central-bank-buying factors took over. For an LP thinking about gold as a portfolio diversifier, the honest framing is that gold is non-yielding insurance against extreme regimes (a complete loss of confidence in fiat, a sustained negative-real-rate environment), but it is not income-producing, not levered, and not tax-advantaged the way cash-flowing multifamily real estate is. A small allocation as portfolio insurance is defensible; an aggressive reach for gold as a stagflation play based on the 1970s alone is not.

What Assets do well in stagflation?

Five asset categories have historically held up across the stagflation episodes for which we have meaningful data, with very different risk and return profiles:

• Income-producing real estate, especially multifamily. The strongest cash-flow case among stagflation hedges. Apartment rents have historically outpaced CPI over multi-year horizons, which is the basis for the inflation-hedge claim. The structural reason is that lease resets happen annually for most apartment leases, so the rent roll re-prices to inflation with months of lag rather than years. The catch — covered in detail in the property-level section below — is that operating expenses also inflate, and capex-heavy categories like flooring, roofs, HVAC, and unit turns often inflate faster than headline CPI. The operator framing is that the spread between rent growth and expense growth is the actual inflation hedge, not rent growth in isolation.
• TIPS (Treasury Inflation-Protected Securities). The single cleanest direct inflation hedge in the public-securities universe. Principal adjusts with CPI semi-annually, the coupon pays the inflation-adjusted face. The trade-off is that real yields can be low or negative for extended periods, and the credit quality is pristine but the duration risk on long-dated TIPS is real. For a portfolio whose primary income engine is multifamily, TIPS are a sensible complementary public-market allocation rather than a competing one.
• Commodity producers (energy, materials). Equities in companies that produce the inputs whose prices are rising. The 1970s saw energy stocks outperform the broader market by a wide margin, and the 2021–2022 episode produced a similar pattern with energy as the only S&P sector with positive returns in 2022. The risk is that commodity-producer equities are still equities — they sell off in genuine recessions even when the underlying commodity does not — so the timing matters more than the long-term thesis.
• Gold. Discussed above. Insurance for the tail rather than a primary allocation.
• Cash and short-duration debt. Often overlooked but legitimately useful when real rates are rising — the alternative to losing value to inflation is losing value to long-duration rate moves. Short-duration Treasury bills and money-market funds at 4–5%-plus yields are not exciting, but they preserve optionality for the LP who wants to deploy into longer-duration assets after the inflation regime resolves.

The assets that underperform are equally telling. Long-duration fixed income gets crushed (the Bloomberg Aggregate fell 13% in 2022, the worst year on record). Growth stocks with most of their value in distant cash flows reprice meaningfully lower as real rates rise. Cash-flow-poor speculative assets (unprofitable tech, most crypto, long-dated zero-coupon bonds) typically have their worst years in stagflation regimes.

What Investments did well in the 1970s?

The 1970s remain the cleanest historical reference for U.S. stagflation: CPI averaged 7.1% per year over the decade, peaked above 14% in 1980, real GDP growth was choppy and weak, and unemployment rose to 9% by 1975 and back above 7% by 1980. The S&P 500 produced roughly flat total returns in nominal terms over the decade and meaningfully negative returns in real terms — what investment professionals call “the lost decade for equities.”

The categories that worked, in rough order of magnitude: precious metals (gold and silver, with the caveats above about Bretton Woods convertibility ending in 1971), energy producers (the 1973 and 1979 oil shocks took crude from $3 per barrel to $35 over the decade), agricultural commodities, real estate (residential and apartment values roughly tripled in nominal terms), and small-cap value stocks (which outperformed large-cap growth stocks meaningfully). The categories that did not work: long-duration Treasury bonds, broad equity indices, fixed-coupon corporate bonds, cash held at fixed nominal yields below CPI.

We do not lean heavily on the 1970s as a literal forward-looking playbook in our LP conversations because the 2020s setup is structurally different — the Fed's reaction function is different, the global capital flows are different, the U.S. housing supply pipeline is different, and the labor-market dynamics that drove the 1970s wage-price spiral have not repeated in this cycle. The relevant lesson from the 1970s is the asset-class ordering — real assets and cash-flowing businesses beat paper assets in a sustained-inflation regime — rather than the specific magnitudes any single asset produced in that one window.

What Happens to Real Estate During Stagflation?

Real estate behaves in stagflation the way it behaves in any extended inflationary period: rents reset to higher levels with a multi-quarter lag, property values eventually follow rents, and operators who hold during the reset capture the spread. The specifically stagflationary wrinkle is that the second half of the equation — stalling growth and rising unemployment — typically tightens the operating environment for residential real estate. Concessions return, renewal-rate negotiations get harder, bad-debt write-offs creep up, and the operator's ability to execute on rent growth becomes more dependent on the local employment base than it is in a clean expansion.

The inflation-hedge claim that LPs hear most often is that “rents track inflation.” The more precise version is that rents have historically outpaced CPI over multi-year horizons, which is what produces the actual hedge — and the reason multifamily holds up is that the spread between rent growth and the rising cost of operating the property is positive over time, even after accounting for the expense pressure that comes with the rest of the cycle. That expense pressure is real and gets understated in most coverage. Through the 2021–2023 inflation spike at our properties, the categories that ran hottest were repairs and maintenance, unit turns, materials for interior renovations (flooring specifically), roofs, and HVAC units. Anyone underwriting a multifamily acquisition through an inflation period who models rent growth without modeling the corresponding expense inflation is going to be disappointed by the NOI realization.

The other structural feature that makes apartments hold up in stagflation is the supply-side response. New construction becomes economically harder during inflation because materials and labor inputs are inflating, and developers tighten the deliveries pipeline. That constrained supply props up existing-property occupancy and rent growth, which is part of why the apartment-as-inflation-hedge claim has empirical support — the asset class benefits from the same input-cost inflation that crushes paper-asset returns.

How to Invest During Stagflation

The practical framework for an accredited LP allocating against stagflation risk has three layers, and tactical reaches at any of them tend to underperform the disciplined version. The first layer is the long-duration income engine — cash-flowing real estate, predominantly multifamily with fixed-rate agency debt locked at known coupons for five to ten years. The fixed-rate debt is the critical detail: it converts inflation from a property-level threat (higher financing costs) into a property-level tailwind (rising rents servicing a stable debt-service number). Sponsors running floating-rate bridge debt have the opposite experience in stagflation — their debt service inflates with rates while their rent growth fights to keep up.

The second layer is the public-securities inflation hedge — typically some combination of TIPS for direct CPI exposure and a measured allocation to commodity producers for indirect exposure. These hold the function that long-duration nominal bonds hold in a normal portfolio: a complementary asset whose returns are negatively correlated with the primary risk being hedged. The third layer is the optionality layer — short-duration cash and Treasury bills that preserve dry powder for the dislocation opportunities that always emerge when the inflation regime resolves. A portfolio that holds zero short-duration cash through stagflation typically gives up the highest-return deployments of the subsequent recovery.

What does not work in any version of this framework: chasing the asset that ran hardest in the last cycle, concentrating in a single commodity bet, abandoning the income-producing core of the portfolio in favor of speculative reaches. The strongest historical proof for the apartment-as-hedge thesis is that rents continue to far exceed CPI over long enough windows, which hedges the rising cost to operate the property. That is the actual operator framing we use with LPs evaluating multifamily as part of their inflation-resistant allocation.

Frequently Asked Questions About Stagflation

Assets that do well during Stagflation - Conclusion

The honest read on what assets do well in stagflation is that the asset-class ordering is reasonably consistent across historical episodes — real assets and cash-flowing businesses beat paper assets, hard assets beat long-duration claims, and the specific magnitudes from any one period (gold's 2,300% 1970s run being the most cited) are misleading as forward-looking forecasts. The general lesson holds; the specific extrapolations don't.

For a passive multifamily LP, the actionable framing is that institutional apartments have held up across multiple inflation regimes because of a specific structural feature — rents reset annually, rent growth has historically outpaced CPI, and the operator-side expense pressure is offset by the rent-roll re-pricing — not because of any mystical real-estate-in-inflation correlation. That makes sponsor selection and capital structure the variables that actually determine LP outcomes. We structure with fixed-rate agency debt at the institutional terms that allow the inflation-rent-growth spread to actually compound for LPs, and we screen markets on six factors that include long-run population and employment dynamics precisely because the local employment base is what protects rent collections when stagflation's unemployment side is at its worst.

Sources

1. Bureau of Labor Statistics — Consumer Price Index (CPI)
2. FRED — Consumer Price Index for All Urban Consumers: All Items (CPIAUCSL)
3. National Multifamily Housing Council — Apartment Stock and Rent Growth
4. Federal Reserve — Federal Open Market Committee (FOMC)