Over the five years to 30 September 2026, which included the 2022 inflation spike, bonds barely moved: VAF returned -0.1% a year and even inflation-linked ILB managed only 0.3% a year. Cash ETFs earned about 3.2% a year. The assets that clearly beat rising prices were shares, gold and resources: VGS 11.8% a year, PMGOLD 19.9% and QRE 13.0%. A cash buffer plus a growth core, with a modest real-asset tilt, has been the sturdier mix.
Why inflation matters more after 50
Inflation does not show up as a red number on your statement. Your balance looks the same, but each dollar buys a little less every year. For someone still working, wage rises soften the blow. For someone living off savings, there is no pay rise. The portfolio has to do that job.
Here is the simple maths. If prices rise 3% a year, $100,000 sitting still buys what about $74,400 buys today after 10 years, and about $55,400 after 20 years. At 4% inflation it falls to about $45,600 of today's spending power over 20 years. Nothing was lost on paper. Almost half was lost in real life.
What $100,000 of cash buys after 20 years
That is why a portfolio cannot sit entirely in cash, even for a retiree. Cash is a good buffer. It is a poor long-term home.
The real-world test: five years including 2022
We do not need to guess how assets behave when prices rise. The five years to 30 September 2026 include 2022, when Australian inflation climbed to its highest level in more than 30 years and interest rates rose quickly. Here is what the main building blocks returned, per year, including distributions.
Returns per year, by type of ETF
Three lessons stand out.
- Ordinary bonds were the weak spot. When rates rise, existing bonds fall in price. VAF and IAF both ended five years slightly below where they started. They still have a role as ballast in a sharp share market fall, but they are not an inflation hedge.
- Inflation-linked bonds disappointed too. ILB holds government bonds whose value is indexed to inflation, but they are long-dated, so rising rates hurt their prices. Over five years it returned 1.6% in total. The protection works best if you hold individual bonds to maturity, not through a fund priced daily.
- Real things and real businesses did the work. Gold, resource companies and global shares all finished well ahead of inflation.
Cash: a buffer, not a plan
Cash ETFs such as AAA and BILL returned about 4% over the past year and 3.2% a year over five. That roughly kept pace with moderate inflation before tax, and fell behind after tax for anyone on a meaningful marginal rate.
That does not make cash useless. It makes it a tool. Holding one to two years of spending in cash means you never have to sell shares or gold in a bad month to pay the bills. Everything beyond that buffer has to grow faster than prices. Compare the options on our high interest cash ETFs page, or read the best cash ETFs compared.
Shares: the long-run inflation hedge
Companies can raise their prices when their own costs rise. That is why shares have historically outpaced inflation over long periods, even though they can fall hard in the short run. Over five years, VGS grew $10,000 to $17,457 and VAS to $13,672, both comfortably ahead of rising prices.
Australian shares also pay franked distributions, which matters to retirees because franking credits can be refunded in pension phase. The core of an inflation-aware portfolio is usually still a broad mix of Australian and global shares. See how to build your core portfolio.
What $10,000 grew to over five years
Real assets: gold, resources and infrastructure
Real assets are things you cannot print more of. They have tended to do well when inflation is driven by shortages of energy, metals or food. On the ASX you can reach them in three main ways.
- Gold. PMGOLD (0.15% fee) and GOLD (0.40%) both returned about 145% over five years, though only about 2% in the past year. QAU is the currency-hedged version. Gold pays no income and can go years without rising. See our gold ETFs list.
- Resources and energy. QRE returned 32.2% in the past year and MVR 24.9%. Global energy companies in FUEL rose 39.1%. These are volatile and sector-concentrated. Browse commodity and resource ETFs.
- Infrastructure. Toll roads, pipelines and utilities often have price rises written into their contracts. IFRA returned 41.0% over three years. It is steadier than resources but sensitive to interest rates. See infrastructure ETFs.
Real-asset ETFs: the past year
Notice how different the winners are year to year. Oil-linked funds jumped while gold stalled and listed property fell. That is a reason to spread a real-asset tilt across a few exposures rather than one big bet.
Property: not the hedge people expect
Many Australians assume property protects against inflation. Listed property has not done so lately. VAP fell 14.3% over the past year and returned just 2.3% a year over five, because property trusts are sensitive to interest rates and borrowing costs. Rents can rise with inflation, but higher rates have outweighed that. See property ETFs for the full list.
Putting it together
An inflation-aware portfolio is not a radical one. It is a normal diversified portfolio with fewer long bonds, a sensible cash buffer, and a real-asset satellite. One way to think about it:
- Cash buffer: one to two years of spending in a cash ETF or high interest account.
- Growth core: broad Australian and global shares, which have outpaced inflation over long periods.
- Real-asset satellite: perhaps 5 to 15% split across gold, resources and infrastructure, for investors comfortable with more volatility.
- Defensive bonds: still useful for stability, but consider shorter-dated or floating-rate options such as SUBD, which returned 4.2% a year over five years, if rising rates are your worry.
One way to build in inflation protection
Watch the costs on the satellite. Commodity and thematic ETFs often charge 0.4% to 1.3% a year, against 0.04% to 0.20% for broad index funds. Compare real-asset ETFs side by side →
Common questions
What is the best ETF to hedge against inflation in Australia?
No single ETF does it reliably. Over the five years to September 2026, gold (PMGOLD, GOLD), resources (QRE, MVR) and global shares (VGS) beat inflation by a wide margin, while bonds and listed property did not. A mix tends to be sturdier than one bet.
Are inflation-linked bond ETFs like ILB worth it?
They protect against inflation if held to maturity, but as a fund priced daily they also fall when interest rates rise. ILB returned only 0.3% a year over five years to 30 September 2026. They can suit investors who want some inflation link in their defensive assets.
Is gold a good inflation hedge?
Over the past five years it was outstanding, with PMGOLD up about 147%. But gold pays no income and has had long flat stretches in the past. Most investors who use it keep it as a smaller satellite holding.
Should retirees hold cash during inflation?
Holding one to two years of spending in cash is a sensible buffer, so you are not forced to sell growth assets in a downturn. Holding much more than that risks losing spending power over time.
Joshua Stega is a financial adviser with 20 years' experience and the founder of ETF Adviser. He built ReviewETF to make every Australian ETF easy to find and compare.
General information only. It does not take into account your objectives, financial situation or needs. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance. Data as at 30 September 2026.