How To Make Inflation-Proof Investments
Inflation creates various challenges for investors. Even though your investments are increasing in value, inflation is diminishing their worth in the long run. The only way to deal with it successfully is to ensure that your money is invested in investments that will profit from inflation while avoiding those that will suffer the most. Consider these inflation-proof investments.
Treasury Inflation-Protected Securities
TIPS, or Treasury Inflation-Protected Securities, are investments that account for inflation issued by the United States Treasury. They are, more particularly, inflation-protected bonds, which have a principal increase when there is inflation. TIPS can outperform conventional bonds in terms of yield. TIPS are available in the period of five, ten, and thirty years and pay interest at a predetermined rate twice a year, which is applied to the adjusted principal. TIPS can be purchased at the Treasury’s website or through your brokerage. If inflation does not rise rapidly, be prepared to diversify away from TIPS.
Commodities are another suitable way to protect against inflation. Raw materials like oil, natural gas, precious metals, wheat, and corn are examples of these commodities. They can be exchanged on the futures market, where futures contracts are acquired and sold later. Commodity prices will rise as inflationary pressures support them, and investors can expect a solid return on their investments. You can possess precious metals directly with coins or bullion bars, but you can also invest indirectly through Exchange-Traded Fund ETFs that hold actual gold. You can also invest in gold mining stocks or funds that are made up of these stocks. However, these are stocks, not the metal itself. They also tend to be exceedingly volatile, even when gold prices are climbing. Investors should consider diversification because we don’t know which commodity will outperform from year to year.
Real estate is the ultimate hard asset, with its price appreciation occurring during periods of high inflation. Regardless of the state of the economy or the markets, everyone still uses real estate. And, while their profits may fall, total real estate will be more stable and rebound faster when things start to improve. You could also consider real estate investment trusts, or REITs, which are more liquid investments that can be bought and sold quickly on the market. In many instances, you can buy a group of REITs in the form of a mutual fund or an ETF.
Emphasize growth in equity investments
Many investors attempt to balance their equity portfolios by investing in high dividend-paying stocks or growth and income funds, which can perform specifically well during periods of price stability. When inflation picks up, high dividend-paying stocks suffer negatively. The better option is to invest primarily in growth-oriented stocks and funds. You should also identify sectors that are likely to profit from inflation. Energy, food, healthcare, building materials, and technology are all expected to rise in price in line with inflation, and they are likely to outperform other equity sectors.
When it comes to investing for inflation, there is no guaranteed profit. Having one or more of these asset classes provides various benefits, including protecting your long-term purchasing power. You can adjust your strategy to invest depending on the degree of inflation.