With rising inflation rates, there may not be much you can do to protect yourself from the cost of goods going up. You can’t stop the prices of food and gas from increasing.
However, you can take steps to make sure your investments don’t lose value because of inflation. There are many different strategies to invest in that will help you protect your assets from inflation.
Value investing, also known as value investing or value theory, is a stock market strategy that advocates buying securities when they appear underpriced compared to their intrinsic value.
A value investor will look at a company’s balance sheet and see if it has any assets that aren’t being fully used or valued correctly by the market.
Value investors typically target companies with high insider ownership and low market caps so they can buy up shares relatively cheaply while getting exposure to those businesses with high potential for growth in the future.
By investing in companies you believe have potential for growth despite what the market thinks right now, you can protect your portfolio against inflation and other risks like recession or bear markets.
Asset Allocation
A large part of protecting yourself against inflation is making sure your assets each have a low correlation to one another. You don’t want any individual asset to go down when another goes up.
You want to diversify your risk across different asset classes and investment types. Real estate is one of the best ways to hedge against inflation.
Real estate rental rates tend to increase with inflation because it makes the cost of living more expensive. When inflation goes up, people have less money to spend on leisure activities like going out to eat or vacationing. They need a place to live, though, so it makes sense for them to pay more for rent.
The rental rates at your properties should increase with inflation as well, providing another source of income to help you mitigate the cost of inflation.
Having part of your portfolio in commodities like gold or oil can be a great way to hedge against inflation. When inflation goes up, so do the costs of many commodities.
If you invest in oil or other commodities, you can sell them off in the future to offset some of the cost of inflation now. Gold is a great way to hedge against inflation because demand for it is relatively inelastic.
This means that as inflation goes up, people will still buy gold as an investment because it will keep its value, whereas something like stocks may lose their value as inflation makes them less profitable.
Diversification
Diversification is absolutely the most important factor in protecting your assets against the risk of inflation. You want to make sure you have a wide range of assets in your portfolio that aren’t highly correlated to one another, especially if you’re managing your investments yourself.
Keep an eye on how the values of different assets are changing compared to each other as well as the overall market.
If you see one asset class is rising much faster than the others, switch some of your investment funds over to that asset class. You want to make sure you have enough funds in each asset class to protect yourself against inflation.
Commodities
Commodities are a great way to hedge against inflation. They have a low correlation to stocks, and they tend to rise in price when inflation goes up.
There are a few ways to invest in commodities. You can buy shares in companies that produce a lot of commodities, like mining companies.
You can also buy futures contracts in commodities like oil or gold. Commodity ETFs are also a good option. Be careful when investing in commodities, though.
If commodities prices fall, your investment could end up being worth less than you started out with.
Real Estate Investment Trusts (REITs)
REITs are a great way to hedge against inflation. They have a low correlation to stocks, and many of them pay out dividends that rise with inflation.
REITs are listed on most major stock exchanges in the US. They’re a great way to diversify your investment portfolio and hedge against inflation.
Be careful when investing in REITs, though. If real estate values drop, REITs will be less profitable because they make money by investing in real estate.
Bond Ladders
Bond ladders are a great way to hedge against inflation. They have a low correlation to stocks, and they provide a guaranteed rate of return.
Bond ladders are a strategy where you buy a number of different bonds with different maturity dates. The maturity dates of these bonds should be at least five years out so you can hedge against inflation for a long period of time.
If you need the money from your investment sooner, you can sell off a few of the bonds at a time. This will let you take advantage of the guaranteed rate of return.
Short-Term Investments
Short-term investments that have a low correlation to stocks are a great way to hedge against inflation. They don’t have the same level of risk as long-term investments, but they still provide you with income. Short-term investments can include things like money market funds or treasury bills.
Treasury bills don’t have a set maturity date, so you can hold onto them for as long as you want.
Long-Term Investments
Long-term investments that have a low correlation to stocks are a great way to hedge against inflation. They won’t provide you with much income, but they should keep increasing in value over time so you can sell them later on for a higher price.
Long-term investments can include things like stocks or real estate. You don’t want to put all of your money in one long-term investment, though.
Diversify across different types of long-term investments so you don’t risk losing everything if one investment goes sour.
Conclusion
Inflation is a constant threat to your long-term financial health. When prices for goods like food and gas increase, it can leave you feeling a little poorer.
You can’t stop these rising costs from happening. But you can protect yourself with good money management strategies like asset allocation.
Keep an eye on how the values of different assets are changing compared to each other as well as the overall market.
If you see one asset class is rising much faster than the others, switch some of your investment funds over to that asset class. By investing in a wide range of different asset classes, you can protect yourself against inflation.
