Inflation is often referred to as the ‘worst kind of tax’. Its effects go unnoticed by most people – like a silent killer. Therefore, we have come up with three investment approaches everyone should consider to protect their hard-earned wealth from the ravages of inflation.
1. Invest in Stocks
To start off – a disclaimer to take this advice with a pinch of salt as stocks are quite subjective. Make your decisions with careful contemplation. Although many express a lack of confidence in stocks, having some equity could be a good way to combat inflation. If a company cannot properly invest in projects that deliver returns above costs – then it will fall victim to inflation. The basic premise of business success is that corporations will sell their goods at increasing prices. This leads to elevated revenues, earnings, and inevitably, stock prices.
During inflation, the best stocks to buy would be in companies that increase their prices naturally during inflationary periods. Examples are commodity resource companies and products like oil, grains, and metals which enjoy pricing power during periods of inflation. The price of these items tends to go up. This is contrary to the price of technology, which is subject to manufacturer and distributor price adjustments.
However, price increases themselves are not sufficient to protect against inflation. If a company experiences rising expenses, price increases only are not enough to maintain equity appreciation. Other measures might have to be taken.
2. Invest in a Home
In most cases, real estate is a good investment. Problems arise when a buyer’s goal is to flip the property they just bought at a profit. Experienced real estate investors are able to find hidden values in properties. For individuals, they should focus on buying a home with the intent of holding it for a few years. Real estate investments do not typically generate a return within several months or weeks. They require an extensive waiting period in order for values to increase.
Like land, home prices tend to increase in value on an annual basis. Therefore, it is true that real estate bubbles are usually followed by correctional periods. This sometimes causes homes to lose over half of their value. Considering that, on average, housing prices tend to increase over time, counteracting the effects of inflation.
3. Invest in Yourself
The best investment you can make to prepare for an uncertain financial future is to invest in yourself. As cliché as it sounds, an investment in yourself will increase your future earning power. This begins with quality education and continues with keeping your skills up-to-date. Learning new skills that will match those most needed in the not-too-distant future. Being able to stay on top of a business’s changing needs may not only help to protect your salary from inflation but also your career from recession.