This paper studies the ability of cash, bonds, stocks and direct real estate to hedge inflation and optimal inflation-protecting asset allocations within a downside risk framework. Using a VAR model to capture predictable price dynamics, we find that the inflation-hedging properties of assets substantially change over the investment horizon. Cash clearly hedges inflation best in the short run. However, as the investment horizon increases, bonds, stocks and real estate become more attractive with respect to inflation-hedging. Real estate has the best qualities to protect investors against inflation on a medium and long-term basis. While cash plays the most important role in short-term portfolios, the weights of the inflation-protecting portfolios shift to real estate, stocks and bonds as the investment horizon increases.