5 Best Investments During Inflation in 2022
Many of us are no strangers to inflation — the prices of necessities are rapidly rising while the working class faces minimal to no wage increases, making it difficult to make ends meet. The next big challenge for us is to find ways to invest that yield actual returns even in the wake of persistent inflation.
What's the best way to protect your money? Investing! Several resilient investments can withstand inflation, like real estate, certain commodities, and cyclical consumer shares (luxury goods, vehicles, or entertainment products). Other investments are excellent but underperforming in this economic climate, for example, cash, bonds, and growth stocks.
The middle ground between these two types includes investments in the travel, semiconductor, and infrastructure sectors. Nevertheless, your investment portfolio needs diversification as inflation in 2022 has beaten several highs. For example, the U.S. saw annual increases in outdoor equipment, housekeeping supplies, and food prices by over 10%, with many categories having the highest inflated prices since the 80s.
How Does Inflation Impact Your Investments?
Various economists coined inflation as a bad guy — it decreases your purchasing power and your return on investments. Imagine you have $10,000 in cash and no investments. Since the Consumer Price Index for 2022 is around 10.2%, you'll likely lose about $1,000 during this inflation surge as you have no other way of increasing your $10,000 with other income sources.
If you have a diversified investment portfolio, you'll earn money from returns that can be calculated on the value of growth. Sounds complicated? Some financial advisors can help you navigate the world of stocks, bonds, and other investments! Nevertheless, you should always be prepared for price fluctuations and evaluate how strong inflation will be and how much your investment portfolio will earn in that year.
Best Investments In 2022
Equities are one of the most popular inflation-resilient investments, as stocks and shares of companies are long-term investments that historically have higher returns than the average inflation rate. You can choose which companies you want to invest in, but remember that well-known brands are more expensive than smaller ones.
During high inflation, the stock market becomes unstable, and stock prices can decrease. Thus, it's a perfect time to invest and make money from the interest rate on your investment portfolio!
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2. Real Estate
The old-school investing methods include purchasing real estate. If you have enough money or can get a property loan, you can quickly invest your money and receive tangible results. Just think about your landlord if you ever had one. They receive money monthly, and contracts protect their investment.
You can consider short-term or long-term renting to people. Moreover, many advisors consider commercial properties a good hedge against inflation. Commercial properties are different than private homes in terms of paperwork, but they can be used for rent as homes, apartments, warehouses, office buildings, or other industrial sites. Depending on the characteristic of your property, your return on investment can be thousands of dollars every month!
3. Precious Metals
Another tried and trusted method of protecting your money against inflation is investing in precious metals like gold, silver, and platinum. They're a great long-term investment that can be passed down the family as precious metals are historically resilient to prolonged periods of economic downturn and inflation.
However, they don't yield high returns, and you won't make much money from this investment. It should protect your income from depreciation, but if you're looking for ways to earn interest rates, consider other options.
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4. Treasury Inflation-Protected Securities (TIPS)
Diving deeper into the world of investing, you may come across the term "TIPS". These are Treasury Inflation-Protected Securities which are government bonds. They protect your money against inflation by raising and lowering its rates in accordance with Consumer Price Indexes that measure inflation rates. TIPS protect your capital and retain your purchasing power during high inflation.
As TIPS rise with a higher Consumer Price Index, it acts as an instrument that reduces inflation. Due to the predictions for 2022, TIPS prices have increased, and their popularity has dropped. Nevertheless, this inflation hedge is worth looking into when preparing for a future economic crisis.
Investing in commodities is one of the most powerful inflation hedges. For example, raw materials and agricultural products can be traded like TIPS or other securities. Some of the most common trading commodities are oil, natural gas, grains, beef, coffee, and many more. It's a great way to diversify your portfolio by signing future contracts with suppliers and investing in exchange-traded funds.
Having A Hedge Against Inflation
We've seen how important it is to be prepared for economic downturns. While many economists have forecasted the inflation surge, many people didn't think twice about the reduction of their purchasing power and loss of capital. However, it's not too late.
Investing is simple — have some money you're willing to put aside, pick the best investment option for you, and watch your money earn returns! Whether you're interested in real estate or stocks, you should have at least one inflation hedge to protect your money against inflation. If all of this seems too complicated, consult a financial advisor to get ahold of your personal finance and make the most of interest rates!
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