The latest U.S. Department of Labor report showed that consumer prices have surged nearly 8 percent year-over-year.

And with many experts calling for even higher readings in the coming months, millions of Americans are stuck in a precarious financial situation—do nothing, and inflation will surely eat away at their net worth.

However, there is one time-tested way to protect oneself in such high-inflationary environments. Investing long-term savings in the U.S. stock market can shield against inflation. According to the financial website Investopedia, the average annual return of the S&P 500 Index comes in at more than 10 percent, which is higher than the 7.9 percent consumer price index registered last month.

“Historically, being invested in equities is really the only good way to stay ahead of inflation,” Eric Henderson, president of the annuity business segment at Nationwide Financial, told CNBC. “Equities can be volatile but for the long run that has been a winning formula in the past,” he continued.

Similar sentiments were shared by Lawrence Creatura, a fund manager at PRSPCTV Capital LLC.

“In inflationary environments, stocks have a distinct advantage over bonds—they’re linked to companies that can adjust pricing—whereas bonds, not so much,” he told Bloomberg. “Companies, on the other hand, can raise prices and you only have to go to your local 7-Eleven to observe that.”

Volatile Market

Putting money to work in such volatile markets can be risky, though.

“Investing should always be a process over time, but when you’re in a high inflation environment and the Fed is aggressively tightening monetary policy, it is without a doubt a riskier time to be in equities,” Liz Ann Sonders, managing director and chief investment strategist at Charles Schwab, told CNBC. “That doesn’t mean you stay out by any means, but you have to be mindful of the disciplines that are important to help you navigate through what is generally a more volatile period of time,” she added.

Hawkish Fed

Investors also need to be mindful of an increasingly hawkish Federal Reserve, which recently raised interest rates for the first time since 2018 to kick off efforts to tackle inflation. The committee has also penciled in rate increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9 percent by year’s end.

Due to this stance, more recession talk has swirled in recent weeks. But some are seeing this as an opportunity, as the Fed is finally taking a proactive approach to contain months of raging inflation.

“The fact is a Fed bringing out the big guns in May and using forward guidance to set the scene ahead of this may be welcomed by the equity market—they’ve weighed up the outlook and feel a credible Fed is a strong Fed, and higher rates are better than entrenched inflation,” Chris Weston, head of research at Pepperstone Financial, told Bloomberg.

Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.