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Inflation sucks. Here you are, doing the right thing, working hard, saving your money and even investing some of it. Then, seemingly out of nowhere, prices for everything start to rise.
You need to spend more of your hard-earned money to cover expenses such as food and fuel. This leaves less in your account to save and invest. You feel like that Greek guy Sisyphus – forever rolling a stupid rock up a hill and getting nowhere.
This has especially been the case lately. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) — a key measure of inflation — shows that prices for goods and services have risen nearly 8% over the past 12 months.
That inflation rate is the highest we’ve seen since the 1980s — when people listened to Rick Astley on purpose.
Fortunately, there are some investments you can use to protect your money from high inflation. And believe it or not, there are some investments that can even help you take advantage of rising inflation.
In this investment guide, we’ll discuss some strategies you can use to inflation-proof your portfolio and stop worrying about rising prices.
So let’s get started!
TIPS stands for Treasury Inflation Protected Securities, which sounds about as boring as these investments.
But while they may not be as exciting as say cryptocurrencies, TIPS are pretty much the safest investments out there.
Each Treasury Inflation Protected Security is a government bond that reflects the movements of inflation, as measured by the consumer price index. If you own TIPS, you will receive an interest payment every six months.
So as inflation rises, so do the interest rates that TIPS pays. And when inflation falls, TIPS interest rates follow suit.
In this way, TIPS are a perfect inflation hedge. And because they’re backed by the US federal government, there’s virtually no risk of losing your startup capital.
It is very easy to buy a Treasury Inflation Protected Security. Most retail investors buy them through their stock brokers.
But you can also buy TIPS directly from the Treasury through the TreasuryDirect website.
One of the biggest drawbacks to TIPS is that the Treasury only puts them up for sale at auction a few times a year through the TreasuryDirect site. So if you are interested in investing in TIPS, you may have to wait until the next auction. The TreasuryDirect website regularly posts auction schedules.
You can buy a Treasury Inflation Protected Security for as little as $100. In fact, they are sold in multiples of $100. TIPS are longer-term play; you can buy them in terms of five, 10 and 30 years.
Now many people will tell you that in times of economic uncertainty you should run screaming from the stock market. But you don’t need that kind of negativity.
In fact, some stocks have historically performed very well in times of rising inflation.
The key is to know what you are doing. Don’t just pick the stock of your favorite restaurant chain.
If inflation gets worse, it could be bad news for many companies. After all, they have to deal with higher operating costs, smaller profit margins and declining sales. All of these factors can have a distinctly negative effect on the stock value.
However, some companies know how to play the inflation game. These are probably companies that offer indispensable consumer products. The kind of stuff that people will continue to buy even when the prices are higher. And they’ve usually been around for decades and are household names.
The best stocks to play inflation
I’m talking about consumer goods companies like Tyson Foods (TSN) and Coca-Cola (KO). Lower price retailers such as Dollar Tree (DLTR) and Walmart (WMT) have also performed quite well during past periods of inflation.
And today, with computer chips that are expensive due to the ongoing imbalance between supply and demand, I still love the idea of grabbing chip makers like Advanced Micro Devices (AMD) and Nvidia (NVDA).
But here’s another secret: think longer term, beyond inflation.
If there’s a company that you think will grow and prosper once it can increase its profit margins, consider buying when its stock isn’t doing very well.
That way, you can grab stocks at a low price and wait for some good news to sell for a profit.
Some investors refer to this type of stock as a “value stock.” Buying these guys is a favorite trading technique of Warren Buffett, the world’s most admired investor.
Just be prepared to stick with the stock in times of volatility. And trust me, there can be volatility.
If you’re just starting out with an investment portfolio and looking to buy your first stocks, you might be surprised at how easy it is to get started.
There are many online brokers that allow users to invest in stocks with no commission for each trade. We’ve put together a guide to our favorites.
Of course, instead of selecting individual stocks, consider buying exchange-traded funds (ETFs) in sectors that typically do well during inflation, such as healthcare, consumer goods, commodities and energy.
These funds trade like stocks and allow you to diversify your portfolio. For example, instead of buying one energy stock, you can buy an ETF that tracks an index of multiple energy stocks.
If one of the stocks in the fund underperforms, all is not lost. The other holdings in the ETF can still increase the value of the fund.
3. Real Estate
Real estate is so cool to invest in. I love it because there’s a real thing: a real building or an acreage with real damn grass or trees.
It is the opposite of crypto investments such as non-fungible tokens or NFTs. They are definitely not good inflation proof investments because they have no intrinsic value.
But you can’t get more realistic than real estate.
And in times of rising inflation, real estate can be a great asset class to own. That’s because, as prices rise, real estate prices also rise.
Ways to invest in real estate
There are several ways you can invest in real estate.
Fix and Flip
If you have the money to buy houses and make a profit, that’s great. Be careful though, because rising costs for building materials and other supplies you may need to complete a flip can hurt your profit margins.
Here’s another consideration: In an effort to curb inflation, the Federal Reserve – the US central bank – is slowly raising benchmark interest rates. That will result in higher mortgage rates, which may deter some people from buying a home.
Real estate rental
And that brings us to another real estate investment: rental real estate. Whether you manage a number of apartments or own and rent commercial properties, this can be a great money maker.
Again, keep in mind that inflation can reduce your purchasing power when it comes to the supplies you need to manage rental properties.
Some investors have had great success investing with a real estate crowdfunding platform like Fundrise.
These online investment companies pool investors’ money to manage properties. You can find crowdfunding platforms for all types of real estate, from commercial spaces to apartment buildings to farmland.
When you invest with one of these platforms, you don’t actually own the properties. But that’s okay, because you don’t have to deal with the annoyances of being a landlord. All you need to do is invest and collect passive income.
However, some crowdfunding platforms require you to be an accredited investor to participate. That means you:
Have earned an income of more than $200,000 per year for the past two years; or have a net worth in excess of $1 million.
REITs, or real estate investment trusts, are another great way to invest in real estate. Like crowdfunding platforms, they let you buy real estate from other investors.
However, they are usually traded on an exchange, just like common old stocks. And you don’t have to be an accredited investor to participate.
If you don’t want to choose individual REITs for your investment portfolio, you can find mutual funds that invest in these securities. In addition, there are a number of REIT-specific ETFs.
Like real estate, commodities are real assets with intrinsic value.
The definition of a commodity is any tangible good that can be bought or sold or bartered for items of comparable value.
That could include everything from gold and silver to corn and sugar, to coal and oil.
In times of high inflation, such as now, precious metals such as gold and silver are typically a class of commodities that perform well. That’s because they tend to hold their value over the long term.
How to buy precious metals
You can buy precious metals directly, think of hoarding gold coins under your mattress. There are several websites that allow you to take ownership of metal.
You can also use your brokerage account to buy gold and silver through exchange-traded funds that contain the actual precious metals.
And you can invest in precious metals indirectly by buying mining stocks or mining ETFs. However, keep in mind that the prices of these securities can fluctuate. They don’t necessarily move along with the value of the metals they mine.
What is the worst investment for inflation?
Without a doubt, the worst investment you can buy in this inflationary environment is long-term fixed-rate investments.
We are talking about bonds and other debt securities with maturities of 10 years or more.
That’s because, when the Federal Reserve mandates a higher interest rate, the fixed rate these securities pay looks less attractive. So investors dump them for investments with higher payouts.
As a result, these fixed income securities lose their value.
It comes down to
Inflation may be making life miserable right now, but take comfort in the fact that it won’t last forever.
However, when we have a period of high inflation and stock market volatility, there are plenty of ways you can protect and even grow your money.
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This post The Best Inflation Proof Investments You Should Consider Buying Now
was original published at “https://millennialmoney.com/inflation-proof-investments/”