If you have noticed that your grocery bills have increased since the last time, even if you are buying the same items, then you are experiencing an inflation surge in your country.
Prices continue to go up, but the worst part is we don’t know when they will stop, making us financially unstable and vulnerable.
But we are sharing some advice with you on how to invest smartly against inflation in the modern day to avoid any big hits to your wallet when spending.
Consider Investing in Real Estate
Investors in real estate tend to benefit from a natural hedge against rising prices. It is because leases tend to reset higher periodically. With the rising prices, housing stays in short supply, and wages keep increasing, which makes housing still affordable.
With the upward trend in e-commerce too, the need for more storage and warehouses tends to increase. And remote-work migration is creating more opportunities. You can invest through private markets or Publicly Traded Real Estate Investment Trusts.
Apart from that, you can also rely on equities, especially the cyclical ones, to ensure capital appreciation for further investment into real estate.
Equities tend to do pretty well during inflation as corporate earnings are strong. Corporations with pricing power in materials or industrials experience robust revenue growth.
Also, focus on avoiding excess cash and consider borrowing. It is because 80 percent of assets in Long-Term Capital Market Assumptions have a higher rate of expected returns than inflation.
You need to defend your purchasing power and avoid excess cash by investing it in a portfolio suitable to your goals and the time horizon.
Bowring can be a good option in such a scenario because interest rates are still low compared to inflation. A mortgage can be a pretty simple way to take advantage of a roaring housing market.
But you have to be careful because rising inflation also influences real estate investments. And the reason is that your money is losing its purchasing power. But it does help the real estate investors in the long run because you are putting your money in the game.
If you’re a residential property owner and it is not generating any cash flow for you, you are a lazy equity property owner. But if you own a rental property that is generating cash flow, then it’s an asset, and you are a real estate investor.
With inflation, real estate value increases, and so do the rents. Moreover, your debt is getting cheaper due to the decreasing value of money with the inflation rise.
Do a Good Research & Focus on Asset Classes for Protection Against Inflation
Your money won’t be able to buy the same values of goods after ten years that it can buy today. This occurs due to inflation, which can result from increased raw materials, wages, etc.
There are different ways to hedge against inflation.
- You can invest in different asset classes, and gold is at the top. Gold has always been considered a hedge against inflation, and many people consider it to be an alternative currency, especially in countries where the currency is losing its value.
- Commodities are another option, and it is a broad category. It includes precious metals, grain, oil, electricity, orange juice, beef, gas, emissions, foreign currencies, and various other financial instruments. You can invest in these commodities using exchange-traded funds.
- You can also look to develop a 60-40 stock-bond portfolio as it is considered to be safe. Hence, you can invest in Dimensional DFA Global Allocation (DGSIX) if you don’t want to manage it on your own.
- Real Estate Investment Trusts or REITs are another good option as these companies operate or own income-producing real estate and pay out dividends to their investors.
- Investing in stocks of the S&P 500 also has an advantage in the long run. These are the businesses that gain from inflation and need less capital.
- Going for real estate income is another good option as you rent out a property that you own.
It’s a Good Time to Buy Some Good Stocks at a Very Low Price
You have to be careful with stocks because they can serve pretty well as a hedge in the long run but suffer in the short run with inflation spikes. But if you are new to the trading world, it’s pretty easy to get started.
You will only have to open an account on a trading or brokerage platform and choose from many online brokers with zero commission trading.
Look for the best options with the widest trading choices, high-quality customer support, and better technological resources. Here are some of the best options for you to consider:
Conclusion
There are various choices you can make to protect yourself from inflations. You can go the trusty old real estate route or invest in different commodities or stocks.
You can also use the inflation period to assess the overall performance of your assets and investments. But keep in mind not to make any dramatic changes based on current inflation, especially if you are a long-term investor.