During times of high inflation, people can understandably panic about investing their money in the right places. After all, the last thing anyone wants to do is to do is to put their money in something that won’t give them returns in the future. However, with the right kind of investment, you can not only protect your money from being devalued by inflation but also make more money in the process.
In this article, we’ll take a look at what to invest in during high inflation, and which investments you should definitely consider staying away from.
What is Inflation?
Inflation is an economic phenomenon that occurs when the cost of goods and services increases due to more money in circulation. Inflation is measured in terms of the Consumer Price Index (CPI), which is a measure of the average change in prices of specific goods and services purchased by consumers.
When there is more money in circulation through increased government spending, loans or production, the purchasing power of money decreases, resulting in higher prices. High inflation can erode the real value of your money over time, reducing your purchasing power and making it harder to buy items.
Which Investments to Avoid
The worst thing you can do in a period of high inflation is to put your money in investments that don’t give any returns. Examples include putting your money in a savings or money market account or a fixed-term deposit.
These low-return investments are not only vulnerable to the devaluation of money due to inflation but also do not provide any inflation protection. It’s therefore important to invest in assets that can give you returns that can keep up with or outperform inflation.
The Best Investments During High Inflation
When you’re investing during high inflation, you should consider assessing the asset class that’s best for your goals before committing your funds. Here are some of the best types of investments you should consider during high inflation:
- Stocks and Mutual Funds
Stocks and mutual funds are an effective way to hedge against inflation. By investing in stocks, you can not only benefit from capital appreciation but also protect yourself against the devaluation of money due to inflation.
You should also consider investing in mutual funds during high inflation. Mutual funds are diversified portfolios of stocks and bonds that can protect you against inflation and also deliver long-term returns.
- Real Estate
Real estate is another great way to make money during high inflation. Property values often increase during inflationary periods and make it a great investment option.
Real estate also has a lower risk of loss due to its stability and relatively predictable returns. Furthermore, you can use the rental income to offset any potential depreciation of value due to inflation.
- Commodities
Commodity investments such as gold, silver, and oil are also great investments during high inflation. Commodities have a high correlation with inflation, and their prices tend to increase accordingly.
If you decide to invest in commodities, you should look for those that are backed by tangible assets and are unlikely to experience large price fluctuations.
- ETFs
Exchange-Traded Funds (ETFs) are a type of investment that can be used to invest in a variety of assets at once. ETFs are traded like stocks and can give you access to multiple assets at a lower cost.
ETFs are a great way to diversify your portfolio and protect yourself against inflation while also providing long-term returns.
In short, investing during inflation is a tricky process. With the right investments, however, you can protect your money and also generate returns through capital appreciation and dividends.
The investments we’ve discussed today – stocks, mutual funds, real estate, commodities, and ETFs – are all great options to consider during a period of high inflation. However, it is always important to consult a financial advisor before committing any funds.
Making the right investments during high inflation can help protect your funds from the devaluation of money and will also help you benefit from the advantages of long-term growth. Ultimately, choosing the right investments for your portfolio can mean the difference between success and failure.
