Veteran Finances: How to Profit From Inflation

Experts recommend where to invest money during inflation to protect your purchasing power.

If you’ve noticed, an inflation spike is showing up in the increased cost of a future vacation or the fact that the same quantity of food now costs more at the grocery store.

According to Select, Delancey Wealth Management CFP and founder Ivory Johnson tells clients that gas is not improving; only their money is.

Consumers suffer the most because we need to know how long the rise in prices of goods and services will last or how we should react financially.

It may mean limiting splurge spending to avoid a big hit to your wallet for the everyday consumer. However, those who invest, you’re probably more concerned about your money losing value in the market.

In order to protect your money from rising inflation, Select spoke to a few experts and got their best advice. As a result, here are seven places to stash your cash right now.

Please remember to ‘TIPS’ your servers.

Treasury Inflation-Protected Securities are simple to comprehend, despite the term being lengthy.

When inflation occurs, TIPS follows suit and increases interest rates. Conversely, when deflation occurs, interest rates drop.

Diahann Lassus, a CFP and managing principal of Peapack Private Wealth Management, recommends adding TIPS to balance out your fixed-income or bond portfolio since they are indexed to inflation.

TIPS are one of the safest investments for your money and an effective way to diversify your investments since the US federal government backs them.

According to Amy Arnott, a portfolio strategist at Morningstar, TIPS’ connection to the Consumer Price Index (a measure of consumer prices paid over time) protects against inflation spikes. Because TIPS rise in line with the CPI, Arnott says they are the best inflation hedge for average investors.

TIPS bonds pay interest twice a year at a fixed rate and are issued in 5-, 10-, and 30-year maturities. At maturity, investors are paid the adjusted or the original principal, whichever is greater.

Keep Your Cash

When selecting an inflation hedge, cash is often overlooked, says Arnott.

Cash is not a growth asset, but it usually maintains pace with inflation in nominal terms if short-term interest rates are rising, she says.

According to Anna N’Jie-Konte, a CFP and founder of Dare to Dream Financial Planning, keeping some money in a high-yield savings account, money market account, or CD is always a smart move, as the economic pandemic has shown just how unpredictable the economy can be.

Cash is an undervalued risk to individual finances, N’Jie-Konte says. She suggests setting aside six to nine months’ worth of cash for single-income families and dual-income families, six months’ worth.

Lassus believes you should keep your short-term CDs until we have a better idea of what longer-term inflation will be like.

The bond fund is an investment vehicle that invests in debt securities with maturities of less than one year.

Keeping your money in short-term bonds is similar to maintaining cash in a CD or savings account in terms of safety and accessibility.

According to Lassus, you should avoid long-term bonds if rising inflation leads to higher interest rates and stick to short- to intermediate-term bonds.

Bond or bond fund investments should be shorter because if interest rates rise quickly, they will be less affected,” she says.

“Arnott emphasises that investors can reinvest short-term bonds at higher interest rates as they mature,.”

Investing in stocks is a risky business.

According to Arnott, stocks can be a good long-term inflation hedge, but they might suffer in the short term if inflation spikes. On the other hand, index funds that track the market have performed well over a long time, even though they have fallen in recent months, which might be a wise choice.

It’s simpler than ever to start investing if you’re a newbie. You can open an account through a brokerage or trading platform. The best choices for new investors are reviewed by more than a dozen online brokers that offer zero-commission trading.

Investing in real estate is one of the best long-term investment vehicles.

The value of a property can increase during periods of higher inflation, which means your landlord can charge you more for rent, resulting in an increased income that is on par with inflation.

In addition to homeownership, real estate investments can be made through REITs (Real Estate Investment Trusts) or mutual funds that invest in them.
The post-pandemic period may alter how real estate reacts to higher inflation. According to Arnott, ‘fundamentals are somewhat in question due to the long-term consequences of Covid.’ Demand for commercial real estates, such as office and retail spaces, is still uncertain as more companies opt for remote work or hybrid models. Mortgage rates have also been rising rapidly recently.

Gold is valued more than other metals.

In the long run, gold doesn’t always protect against rising inflation (meaning decades), but it tends to keep up.

Commodities can be purchased or sold for money.

When inflation rises, the prices of raw materials such as oil, metals, and agricultural products usually increase, making them a good hedge against inflation.

Investors should be aware that commodities can be hazardous, Arnott says. Commodities’ prices are mainly dependent on supply and demand, which can be highly unpredictable. In addition to taking on leverage, this makes them a risky investment. Rewards are high, but so are the risks of losing.

Cryptocurrencies

Bitcoin’s limited supply is often compared to gold, making it ‘digital gold.’ However, Arnott says the jury is still determining whether it will make a good inflation hedge over the long term.

According to Arnott, the recent volatility in Bitcoin is a warning to investors. In addition, she emphasizes the fact that Bitcoin is hard to integrate into a diversified portfolio as a warning to investors.

Everyday investors can now invest in crypto through various apps, including traditional financial services providers such as Cash App, PayPal, Robinhood, and SoFi.

It’s all about the money.

Investors can protect themselves against inflation through various options, but the safest bet is through TIPS. During inflation surge periods, use the opportunity to review your overall investment performance and allocation to ensure that they align with your goals.
“Do not make drastic alterations based on current inflation or market conditions, since most of us are still long-term investors,” Lassus says.

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