Increasingly, investors are concerned about how inflation may affect their portfolios. As stocks decline due to high inflation rates, now might be a good time to evaluate your portfolio and decide whether inflation hedges are appropriate for you.
Diversifying your investment portfolio can be a great way to protect yourself from currency loss when inflation is on the rise.
Inflation isn’t going anywhere anytime soon, so here are 4 ways to combat it.
Invest In Real Estate
Real estate is a relatively safe investment option. It generally holds up well in periods of higher inflation, since the value of the property may increase. This occurs when landlords increase rent prices, which in turn raises their income in line with inflation.
REITs (real estate investment trusts) and direct property ownership are two of the most common ways to invest in real estate. In the latter case, small and medium investors also have an opportunity to gain exposure to the commercial real estate market. Investors should consider diversifying their real estate portfolio with property investment funds.
Save Some Cash
Many experts recommend that you have enough cash to cover your essentials outgoings for at least six months. Invest in a traditional high-paying savings account to protect your savings from inflation.
In spite of how low interest rates on cash savings accounts are when compared with inflation rates, it is important to save money for emergencies, such as losing your job or a sharp spike in inflation. You’d lose this money if you invested it in investments such as stocks when the markets are down, and inflation prices are high.
Invest In Gold
Gold has traditionally been favored as an investment option among stock enthusiasts because it is effective in resisting inflation. Even during difficult times, gold’s price has been unimpacted and is therefore a relatively safe option for investors if interest rates have dropped or inflation increases. In addition to the common physical gold investment, investors are also able to explore options such as digital gold, real diamond rings, or gold ETFs (exchange-traded funds) in order to protect their wealth. During tough economic times, gold can often serve as a store of value to investors, and has a proven track record of this.
Invest In Bitcoin
Bitcoin could be a strong inflation hedge, in theory. Unlike other historically reliable investment strategies like gold or real estate, Bitcoin doesn’t have a proven track record that would make this kind of investment an obvious one.
In spite of its launch in 2009, it has been traded for less than a decade, therefore, no one knows how inflation will affect bitcoin and its characteristically volatile stock level behavior.
But, during inflation in 2021, its stock performance unexpectedly improved, then abruptly declined again. As anyone operating in the stock market will know, investments are precarious in nature, so Bitcoin is, for now, a risk only those who can really afford it should take.
Money today will not be able to buy the same value of goods in the future, as inflation will reduce its purchasing power. Consequently, it is important to find the right investments and strategies to hedge against inflation.
