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The U.S. Government Just Dropped an Inflation Hedge in Investors’ Laps


For much of the past few months, the biggest news in Washington has been the twin bills being considered in Congress — a $1 trillion bipartisan infrastructure bill and a $3.5 trillion budget agreement aimed at social services. While neither of them has been passed yet, there is still good reason to be optimistic both will end up on President Joe Biden’s desk soon. This means that there will also be many opportunities for investors to capitalize on the influx of government funds. While this article will walk through some of the finer points of infrastructure investing and how you can do it, for more help getting the most out of the infrastructure boom, consider working with a financial advisor.

Infrastructure and Infrastructure Investing Defined

The House originally committed to voting on Build Back Better agenda by September 27 — but political infighting within the Democratic caucus has pushed this deadline back to the end of October. This legislation includes a $1 trillion bipartisan bill (approved by the Senate in August), which focuses on building and upgrading roads, water and sewer services, waste management, shipping and energy systems. The stickier wicked has been the $3.5 trillion Budget Committee agreement, which is expected to push beyond physical infrastructure projects and invest in health, education and climate change legislation. Conflicts within the Democratic Party — specifically with more moderate Senators Joe Manchin (W.Va.) and Kristin Sinema (Az.).

With new opportunities in the horizon, infrastructure investing will allow investors to put their money into the companies that will bid and win these lucrative government contracts to build roads, improve sewer systems and carry out other infrastructure projects paid for with the combined $4.5 trillion infrastructure plan. It stands to reason that these companies could see their overall value go up as they win these contracts, and investors can in turn see their infrastructure-oriented investments increase in value.

How Infrastructure Investing Can Help Hedge Against Inflation

infrastructure bill mlp

The biggest benefit for infrastructure investments right now is based on the fact that the industry is poised to see a boom, which creates the possibility for big gains. Another less obvious benefit, however, could help investors hedge against inflation. Infrastructure investments involve real assets, and because they are so tied to government policy, there is often regulatory protection against inflation.

Additional investments, including other equities sectors and treasury bonds, are not as protected against inflation and could be hit hard if the economy enters a period of high inflation.

If you’re investing in MLPs (or in funds that invest in MLPs), you could also get many tax advantages.

How to Invest in Infrastructure

infrastructure bill mlp

There are a number of ways you can invest in the infrastructure boom. The first is simply to find a few companies that you think could get a bump from the infrastructure legislation and buy shares in them. Machinery and materials companies are some of the most common options here. This does require a fair bit of industry knowledge, as well as patience and the ability to sort through investing research to identify the companies most likely to result in big money. This method also carries a good bit of risk — you’re putting all your eggs in one or two infrastructure baskets, so if you guess wrong and these companies don’t see growth, you’re out of luck.

Another popular way to invest in infrastructure is to put money into infrastructure-focused mutual funds and exchange-traded funds (ETFs). This way, you get a basket of investments in the industry, selected by a professional investor — so you don’t have to do the research yourself to find the best infrastructure investments. Plus, you are automatically diversified, so if one of the firms that your fund invests in turns out not to see much growth, you’ll still have other investments to keep you from losing too much money.

Finally, there are master limited partnerships (MLPs), which are companies that focus on various infrastructure and infrastructure-adjacent industries. Though they are called partnerships, they are publicly traded on the stock market. These companies also have major tax advantages.

There are many companies in the financial sector offering infrastructure-focused funds. A financial advisor can help you find the one that’s right for you, but a few that have gotten positive press from financial news site Barron’s include the iShares US Infrastructure ETF and the Global X US Infrastructure Development ETF.

Bottom Line

A lot of money will pour into the infrastructure sector depending on the approval of legislation in Washington. This means that investors could seize on opportunities from an infrastructure boom by investing in the companies that are poised to win government contracts for these projects nationwide. Infrastructure investing has many benefits, including inflation protection, and can easily be done through infrastructure-focused mutual funds, ETFs and MLPs.

Investing Tips

  • financial advisor could help you identify different infrastructure investment opportunities and advise on investment plans. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • If you choose to invest in infrastructure, make sure you note how it impacts your asset allocation and to make adjustments if needed to maintain the balance that is right for you.

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