Inflation Protection Investments: Your Hedge Against Inflation?!

Inflation Protection Investments: Your Hedge Against Inflation?!

Inflation is ramping up: How to protect now?

The inflation report in the USA is currently at 8.26%, compared to 8.5 percent last month and 5.25% last year and it is on the rise. Inflation is not just affecting the price of groceries and gasoline, but also your wages and savings.

If you haven’t been paying attention to inflation lately, it might be time to start. Welcome back to our channel, in today’s video, we will explain to you what inflation is and how can you protect yourself against it. Without wasting any time, let’s get started.

Inflation is defined as the gradual decline in the value of money over time. Let’s understand this with the help of an example, It is the year 1990. Your mom and dad, as promised, have brought along you on a trip to Florida to the magical Disney World. What do you think your 4-day long visit has cost your parents?Β 

280 Dollars.

Fast-forward to 2022, you’ve decided to take your child to Disney World and relive your old memories too. But this time, for your partner, your child and you, the 4-day ticket costs you a little over….. 1200 Dollars. And this is a classic example of inflation.

Now that you know what inflation is and how it impacts your savings, it’s time to look at what measures can you take now, to protect yourself in the future.

Evaluate whether your income is protected against inflation.

Inflation protection is one of the most important aspects of your financial plan. It can protect you from the rising cost of living, and it’s also an important part of any investment strategy. In general, you should look at your income sources that aren’t inflation-protected and see if they’re still viable in five years’ time. This includes things like salary increases or bonuses from work, property sale proceeds due to rising prices and interest earned on savings accounts. If you do have some income sources that are not protected against inflation such as a pension, then it’s important to consider how these might change over time as well as how much they’ll increase when compared with other areas within your budgeting scheme like savings accounts or investments.

Make Systematic Profitable investments.

Only by investing your money profitably can you achieve true inflation protection. This is the most effective way to combat inflation. The beauty of this is that it will not only protect you from inflation but will also increase your capital.

The following asset classes are subject to price fluctuations, but the long-term trend is upward. Inflation, even if only moderate, is also beneficial.

Please keep in mind that higher yields imply higher risk. Higher yields can help to offset inflation, but higher interest investment forms come with new risks. To avoid cluster risks, you should diversify your capital, which means spreading it across many investments and investment categories.

Real Estate

If you, as the buyer, pass on the higher costs to the tenants, a property works well as an inflation hedge. Because as inflation rises, so do the costs of maintaining the property. Financing costs may also rise if you do not have a fixed-rate agreement with the bank or if it is about to expire. If rents do not rise in proportion to costs, you will lose money as a landlord. Strong and sudden rent increases are typically difficult to impose on tenants. During a period of high inflation, or even hyperinflation, this quickly becomes a major issue. However, if you sell the property during a period of high inflation, you will be well protected. As inflation rises, so do property prices, so you may be able to sell your home for much more than you paid. Of course, you’ll need a buyer willing to pay a higher price to accomplish this. However, be wary of property bubbles!

Infrastructure funds to combat inflation

Infrastructure development will continue to be a hot topic around the world for a long time. Aside from bridges, highways, and airports, recent investments have been made in communication networks and renewable energy. In addition to individual investments, funds that bundle various infrastructure projects are increasingly being offered. Investing in infrastructure funds can thus be beneficial, especially since most offer above-average returns. The demand is enormous and will only increase.

Buying Gold or maybe Not!

Unlike paper money, gold cannot be infinitely multiplied. As a result, it has a good reputation as a “crisis currency.” Gold is also unaffected by governments or central banks.

Furthermore, gold is one of the world’s oldest forms of payment and transcends cultures. Even the Romans used gold coins to make payments.

Gold’s status as an inflation hedge is debatable. The past has shown that the inflation rate and the gold price do not always behave as expected. Examples include the years 1980 and 1981 when inflation was extremely high but the gold price remained stable. On the other hand, the gold rally from 2001 to 2005 cannot be explained. At the time, inflation was on the decline.

So you can invest in gold to diversify your portfolio, but it’s not necessary that it will act as a hedge against inflation for you.

So this brings us to the end of this video, we hope you have learned something new, don’t forget to subscribe to our channel to watch more amazing videos like this and we will see you in the next one.