Surviving Inflation: 5 Tips For Investors
by Trey Finch
Prices are rising on gasoline, airline tickets, groceries… you-name-it. Inflation seems inescapable. Even on social media, it’s hard to escape (or blame) people grumbling about it.
In a perfect world, an investor’s retirement plan would sit high and dry; immune to such challenging market trends. Unfortunately, that is not the case.
However, all is not lost.
We have tips on surviving—if not thriving—even when the economy wobbles.
What to Invest In During Inflation: Your 5 Best Choices
The sooner you take preventative measures, the better. Failing to do so could mean losing potential gains.
In fact, it sometimes gets much worse than that. In extreme cases, inaction can leave investors with a portfolio of assets worth less than they originally paid to purchase them.
The good news is that while some investments’ yields dip during inflationary periods, others actually receive a boost.
With this in mind, you can make the best of times like these by considering the following.
Precious metals retain their value, regardless of market volatility. In that sense, they are hard to beat.
At the same time, we do not recommend dumping 100% of your life’s savings into them. In other words, make sure you do your homework before rushing in.
Gold comes with a caveat: the costs of storage and insurance can lower your overall return. If you want a decent ROI, you cannot just cram bullion and coins into a sock drawer.
So, expect additional investment in both how you keep it and security measures. Some collectors store theirs in a 3rd party vault, which can make both easier, but there is a price for that, too.
There are also various investment products that provide exposure to the performance of gold, typically via gold futures contracts.
2. Floating Rate Bonds.
Sometimes referred to as “short-term” bonds, these assets have interest rates that are adjusted to match current market rates.
Their inflation-friendly nature means that floating rate notes yield more dividends for investors when interest rates rise. You might say they float on interest rate hikes while fixed-income investments, their opposite, often sink a bit.
This is because as rates go up, newer bonds generate higher yields. This makes them more attractive to investors than old ones. So fixed-rate notes, which are normally low-risk choices, lose value.
Meanwhile, floating-rate bonds often reach maturity faster. As a result, investors tend to want to hold onto them in anticipation of higher interest rates.
Coupon payments adjust with them, too. This makes them one of your best investments during inflation.
3. Real Estate and REITs.
Human beings will always need housing. That necessity is not going anywhere overnight.
Industrial businesses like manufacturers need workspace, too. You never know when a once-obscure parcel of land will prove invaluable to a growing retail chain.
This is why real estate’s near-timeless value can provide built-in inflation hedges. When interest rates spike, this asset class often rises, keeping pace.
In some cases, it even climbs above, outpacing hikes. Land consistently yields dividends, regardless of market turmoil elsewhere.
So, if you’re wondering what to invest in during inflationary periods, look no further.
A Real Estate Investment Trust (REIT) can also be one of your best investment options during inflation. These are opportunities for individuals to buy into larger-scale real estate.
A REIT is essentially a company that owns (and often, operates) multiple real estate or real-estate-related assets. These assets are selected chiefly because they produce income.
Examples include shopping malls, hotels, office buildings, apartments, and so on. Mortgages or loans are often additional assets.
Standard real estate companies may buy land and buildings to fix and then sell (or “flip”). In contrast, a REIT mainly purchases and develops properties and keeps them. The overall goal is to add them—and their income—to its investment portfolio.
4. Emerging Market Stocks.
These assets are located within economies that are experiencing rapid growth. Often they are based in developing countries like Mexico, Indonesia, Brazil, and India.
Emerging market economies are less developed than the US and Western Europe, and they have different economic drivers that behave differently than developed countries. Obviously, some will ultimately pan out better than others. Nevertheless, there are many profitable businesses that call these countries home.
Examples include companies like DLocal, which facilitates payments in emerging markets; Deepak Nitrite, an Indian commodity chemicals producer, and Mexican investment platform Flink.
Success isn’t guaranteed, though. Emerging market assets offer unique opportunities, but they can be double-edged swords, as well: The risk is usually as high as the reward.
A savvy investor finding the ideal investment at the right time can make hefty gains. Nevertheless, we recommend taking time for researching candidates rather than leaping in blindly. One size definitely does not fit all here.
Similar to real estate, commodities are raw materials that—most, if not all of which—we will always need. Everything from wheat to oil to corn, metals, and natural gas is continually traded in varying states of demand.
The benefit of these assets lies in the fact that they get more expensive when inflation drives up costs. For example, when bread gets expensive in grocery stores, that’s because the cost of wheat is on the rise.
The downside is that the commodities market can occasionally have its own unique volatility. This is often due to unforeseeable circumstances, like inclement weather: Droughts and floods happen.
Elsewhere, extended freezing temps can wreak havoc on citrus groves. So, to compensate, we recommend investing through a diversified vehicle like an exchange-traded fund or a mutual fund.
The Bottom Line
We don’t know a mortal being capable of predicting the day or hour when this economic rain will end. That’s why we recommend planning ahead in case it lasts a while. Sometimes sandbags are your best insurance.
However, don’t let any of this discourage you. It’s just important to protect your portfolio during inflation—and ideally, ahead of interest rate hikes. The absolute worst is not a sure thing, but it’s always better to be safe than sorry.
Now is the time to sit down with a financial advisor in Brentwood or elsewhere and review your financial goals. We’re here to help you ensure your best financial future, no matter what the forecast predicts.
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