Hedges Against Inflation
Inflation is a major concern for a lot of people right now. Resting just above 5% at the time of writing, this is the highest it has been since August 2008. While those rates quickly subsided it’s always best to hedge against unforeseen economic trends. Here are a few strategies you can use to protect yourself from inflation.
Invest More Into Stocks
Bonds are usually seen as the ultimate safe money investment, the returns may not be massive, but they are guaranteed! However, in times of high inflation, your returns may not outpace the devaluation of the dollar. This means bonds would still be better than simply leaving your funds in a savings account, but the value of your capital may still take a loss in purchasing power. A great way to combat this is to allocate a small portion of your capital into the stock market. Blue-chip stocks are usually safe bar major economic corrections. Let us take Apple for example, which is up 24.98% for one year at the time of writing. At this rate of return, you would vastly outpace the current 5.3% inflation rate, which is unlikely to persist for an entire year if previous data is any indication. This is not a suggestion to purchase Apple or any other specific securities, just an example for demonstration.
Looking to international markets can be another choice for those scared by the economic futures in the United States. Several countries like Italy, Australia, and South Korea don’t trade in line with US market indices. Each of these markets will have similar indexes and ETFs to the United State’s S&P 500 and SPY. These would allow you to allocate funds into this market with minimal research and diversified exposure. We would like to reiterate that we don’t suggest the purchase of any specific securities and you should consult with a licensed financial professional before taking any action in the market.
Consider Real Estate
No matter the state of the economy people will always need a place to stay and a place to conduct business. Real Estate is a tried-and-true hedge on inflation because space is a commodity that is always in demand. You may not have the capital to invest in a whole property, or the idea of putting that much capital in a single investment may make you uncomfortable. A product that addresses these fears would be REITs or Real Estate Investment Trusts. These products allow you to have partial ownership of a vast number of properties and can even provide you with income derived from said properties’ rental payments. These would be a great hedge against inflation and a source of passive income!
Look into TIPS
No, not what you would receive waiting tables, TIPS, or Treasury Inflation-Protected securities. These are built to grow in value in order to keep along with inflation. These bonds are connected to the Consumer Price Index and their value is reevaluated based on the fluctuations of the index.
Before making any major financial decisions you should consider consulting with a financial professional. If you would like to schedule a consultation with one of ours at ReJoyce Financial, you can do so for free by scheduling below.