Which Investments Should You Consider in Times of Inflation and Stagflation?

April 21, 2021
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Inflation rates are clearly on the rise during our economic recovery from the pandemic, and many experts fear that a stagflated market could also be on the horizon. As an investor, you must do what you can to prepare for these market conditions. Smart moves now can mean a clearer path to financial independence in your future.

If you haven’t read our last two blog articles, I would suggest checking them out:

How Inflation Affects Your Financial Independence

What is Stagflation and What Does it Mean for Business Owners?

These previous articles will give you a better view of how inflation and stagflation affect investors, business owners and those planning for retirement. Today, we’d like to talk more about investment moves that you can make to prepare for—and thrive within—an inflated (and possibly stagflated) economy.

Inflation vs. Asset Appreciation

The rising prices of inflation essentially lower the value of any cash savings or fixed-income investments. If your investments or savings interest aren’t growing at the same or better rate than the prevailing inflation rate, then you are actually losing money over time. Financial planners and the successful investors they work with know that you must put your money into assets that will appreciate at a quicker rate than interest. They are typically tangible assets like real estate, gold, stocks and bonds.

A saving or retirement account with conservative investments will provide slow and steady growth. With lower risk investments you have to be very careful in choosing them. Inflation can reduce the purchasing power of these assets, so the rate of growth must at least match the rate of inflation. If not, then they aren’t really helping improve your financial situation over time.

What Are Good Investments to Hedge Against Inflation?

Good inflation-hedging investments typically include stocks and tangible assets like commodities, business ownership and property. Playing the stock market is great if you know what you are doing and/or have a skilled investment advisor on your side. You have to know when to buy and when to sell. A successful investor will be able to minimize the negative financial effects of inflation. In some cases, you can actually use inflation and stagflation to your advantage with strategic investing.

Tangible Asset Investments

Tangible assets are also usually beneficial as inflation goes up. As long as the assets are appreciating in value along with inflation, you will be in good shape. Real estate is always a safe long-term investment. It will generally appreciate in value over time. Some specific commodities might also be smart investments you can make to hedge your bets against inflation.

You can also look into certain commodities or timber investments that have historical track records of being inflation resistant and not corrrelated strongly with the stock market. These always present some risk. You have to be careful about where you invest your money and keep a very close eye on the trends. A good example of this right now is cryptocurrencies. Are they really the “currencies” of the future or just a another asset with high volatility? That is another topic for another day, though.

Successful investing is all about mitigating risk and making strategic adjustments. You should also be careful never to put all your eggs in one basket. You want to diversify your portfolio for different economic environments. This is the absolute best way to minimize risk and prepare for any growth and inflation conditions that may happen in the future.

For all your investment planning and wealth management needs, contact Illumination Wealth to schedule a confidential introductory financial consultation.