Here are some investment ideas to consider during inflationary periods. These are all good ideas individually, but together, you can build a strong and well-diversified portfolio. Remember though to never invest money that you aren’t prepared to lose, as things can take a turn for the worst at any moment.
Having real estate investments is a great idea to have in your portfolio no matter the economic conditions. Generally, during times of economic uncertainty and especially during inflationary periods, investors favor tangible assets as they are more likely to hold value and stand the test of time. Real estate is a prime example of this.
With real estate investments, you will often be making passive income through them. Luckily for real estate investors, increased inflation tends to raise property values, meaning you can raise rental prices as well. If your mortgage payments stay the same but you increase the price of rent, you will see yourself making more money on your investment during periods of inflation than during normal economic conditions!
Furthermore, as the property value increases and your mortgage stays the same, your equity in the property will increase. Thus, lowering your loan to value ratio and giving you a natural discount.
Commodities are another investment professionals recommend to help hedge against the effects of inflation. Normally, as inflation rises so does the price of commodities. Commodities are generally raw materials that are used in the manufacturing of other goods and services. We see that as inflation rises, so does the demand for goods and services as a whole. This in turn raises the demand and value of commodities.
Commodities are classified as ‘real assets’. Real assets react in an inverse way to ‘financial assets’ like equity securities, to effects in economic conditions. If your portfolio is heavily invested in equity securities, like stocks, consider investing in commodities to help diversify your investments.
Inflation-indexed bonds are one of the most obvious investments to make to help hedge against inflation. As the name states, these are bonds whose principal and interest rates are correlated with the rate of inflation. So unlike your typical bonds that lose value when inflation increases, inflation-indexed bonds will see an increase in face value and interest payments.
Most commonly, you will see investors turn to TIPS (treasury inflation-protected securities), a type of inflation-indexed bond. It is important to note though that given the lower risk nature of this security, TIPS are typically more expensive than traditional bonds and may lose value if inflation is not as high as expected. Furthermore, because this investment is so low risk it also has a very low yield.