Where To Invest During Times Of Inflation?

Inflation can also be called a silent killer that can erode the purchasing power of an investor’s portfolio, even if the investors maintain positive returns over their years. Rising prices have become an unavoidable fact for life for more investors. While losing the value of your dollar bills can be frustrating, economists consider inflation a sign of a healthy and prospering economy. This is because inflation forces people to spend or invest a small amount of their savings rather than stuff it all in a cookie jar or inside your pillow. However, once inflation spreads throughout the economy, the expectation of further inflation becomes an overriding concern in the consciousness of consumers and businesses. 

Here are expert tips for wise investment steps during times of inflation:

Don’t leave your stocks 

GETTY IMAGES/ ISTOCKPHOTO | Inflation is self-perceived differentiation

Stocks, historically, have been a good hedge against inflation, some sectors more so than others, so financial planners advise against getting rid of stocks or equity-based funds. Investors own stocks primarily because it helps them earn a return on their investment. When the stock prices rise, it helps them achieve capital appreciation and dividend payments; this is because the stock market’s returns often outpace the inflation rate, which can help slow down or prevent the adverse effects on taxes. Owning stocks in different companies allows you to build your savings and protect your money from inflation and taxes. 

Many companies pay dividends, which are regular payments to shareholders. Not all stocks pay dividends, but those typically do so every quarter. These dividend incomes can help supplement an investor’s paycheck or retirement income. Investing in stocks can also help you earn passive income after retirement or when you lose your job. Companies are best positioned to adjust to inflation since they can pass along the cost increases to consumers, keeping their profit margins intact and their share prices up.

GETTY IMAGES/ ISTOCKPHOTO | Experts say there are three main factors currently fueling much of the price growth: sharply rising labor costs, energy prices, and interest rates

Invest 

The stock market tends to beat inflation with its rate of returns; however, your money growth would be slower in times of deflation or inflation. Financial advisors suggest investing in sectors or industries that follow the movement of the economy, such as the energy or water sector since stocks of these sectors rise in value according to the economy. You can also invest in real estate since the property’s value significantly increases during periods of higher inflation. 

Getty Images/ CNBC | While high inflation is generally considered harmful, some economists believe that a small amount of inflation can help drive economic growth

Many inflation-averse investors turn to real estate to hedge their holdings, although the size and variability of the market can make it very difficult to generalize about this particular asset class. However, real estate investments require a big buy-in and a variety of costs for financing and maintenance. This is why Real Estate Investment Trusts (REITs) provide a simple way for regular investors to diversify their portfolios and get the inflation hedging benefits of real estate.  When you invest in REITs, it’s like buying a fund that exclusively owns real estate assets. Regulations require them to pay out regular dividends, making them particularly appealing to income investors.