Inflation proof investments can give you peace of mind when rumblings of a recession weigh down your vibe.
Due to inflation, what a dollar can buy you today, will not have the same value years from now.
The International Monetary Fund defines inflation as the rate of increase in prices over a given period of time.
Keep in mind that some inflation is totally normal. The current inflation rate, according to the Bureau of Labor Statistics is 3.2%.
Whether you’re a seasoned investor or just starting out, knowing where to put your money to safeguard against inflation is essential.
Here’s 13 inflation-proof investments that can help you preserve and grow your wealth.
#1 Real Estate
Real estate has long been considered a stable investment, offering the potential for both income and appreciation.
From residential properties to commercial spaces like mini malls, owning real estate can provide a hedge against inflation by offering rental income that tends to increase over time.
Real estate is often considered a good and inflation-proof investment for several reasons:
- Tangible Asset: Real estate involves owning physical properties such as houses, apartments, or commercial buildings. Unlike stocks or bonds, which are paper assets, real estate provides investors with tangible assets that have intrinsic value.
- Limited Supply: Land, especially in prime locations, is a finite resource. As populations grow and urban areas expand, the demand for real estate tends to increase. This limited supply can drive property values up over time, providing a hedge against inflation.
- Rental Income: One of the key benefits of investing in real estate is the potential to generate rental income. Rental properties can provide a steady stream of cash flow, which tends to increase over time due to inflationary pressures on rent prices.
- Appreciation: In addition to rental income, real estate often appreciates in value over the long term. While there may be fluctuations in the short term, historical data shows that real estate values tend to rise over time, outpacing inflation in many cases.
- Leverage: Real estate investments can be leveraged through mortgage financing, allowing investors to control a larger asset with a relatively small amount of capital. This leverage magnifies the potential returns on investment, especially in periods of inflation when asset prices are rising.
- Inflation Hedge: Real estate is often considered a natural hedge against inflation because property values and rental income tend to increase along with the general price level of goods and services. This means that real estate investments have the potential to preserve purchasing power over time.
- Tax Benefits: Real estate investors can take advantage of various tax benefits, such as depreciation deductions, mortgage interest deductions, and property tax deductions. These tax advantages can help enhance the overall returns on investment and mitigate the impact of inflation.
Overall, real estate offers investors a combination of income, appreciation, and inflation protection. It’s a popular choice for long term wealth building.
However, it’s essential to conduct thorough research and due diligence before investing in real estate to mitigate risks and maximize returns.
#2 Stocks
You may think you do not have enough money to invest, but there are plenty of investing options for those who want to get started with just a little money.
Investing in high-quality stocks of established companies with low capital needs, can be a smart move to beat inflation. Stocks historically have outpaced inflation over the long term, offering investors the opportunity for capital appreciation and dividend income.
Stocks are often considered good inflation-proof investments for several reasons:
- Ownership in Profitable Companies: When you buy stocks, you’re essentially buying ownership in a company. Successful companies have the ability to adapt to inflation by increasing prices for their products or services, which can translate into higher revenues and profits. As the company’s earnings grow, so does the value of its stock.
- Historical Performance: Historically, stocks have provided returns that have outpaced inflation over the long term. While there may be fluctuations in the short term, the overall trend of the stock market has been upward. This long-term growth potential makes stocks attractive as a hedge against inflation.
- Dividend Income: Many stocks pay dividends, which are distributions of a company’s earnings to its shareholders. Dividend-paying stocks can provide investors with a steady stream of income, which tends to increase over time. Dividend growth often outpaces inflation, helping investors maintain their purchasing power.
- Capital Appreciation: In addition to dividend income, stocks can appreciate in value over time. As companies grow and become more profitable, the value of their stock tends to rise. This capital appreciation can help investors offset the effects of inflation by increasing the value of their investment portfolio.
- Diversification: Investing in a diversified portfolio of stocks can help spread risk and reduce the impact of inflation on your overall investment portfolio. By holding stocks across different sectors and industries, investors can mitigate the risk of any one company or sector underperforming during periods of inflation.
- Inflation Expectations: Stock prices are influenced by expectations about future earnings growth and inflation. During periods of expected inflation, investors may bid up the prices of stocks in anticipation of higher revenues and profits. This can lead to capital gains for investors who hold stocks as inflationary pressures materialize.
- Inflation-Resistant Businesses: Certain sectors of the stock market, such as consumer staples, utilities, and healthcare, tend to be less sensitive to changes in inflation. Companies in these sectors provide essential goods and services that people need regardless of economic conditions, making their earnings more resilient to inflationary pressures.
Do research and speak to a professional before investing in stocks. You can also get started investing with an investing app managed by professionals.
#3 Cryptocurrency
Cryptocurrency, like Bitcoin and Ethereum, has gained popularity as a hedge against inflation due to its decentralized nature and limited supply.
While volatile, some investors view cryptocurrencies as a store of value that can protect against the erosion of traditional fiat currencies caused by inflation.
#4 Gold
Gold has been a traditional safe haven for investors during times of economic uncertainty and inflation. Its scarcity and inherent value make it a popular choice for preserving wealth when other assets may lose value due to inflationary pressures.
#5 High Yield Savings Accounts
High yield savings accounts offer a safe and convenient way to earn interest on your cash while protecting it from inflation. These accounts typically offer higher interest rates than traditional savings accounts, helping your money grow over time, while allowing you access to your cash.
#6 CDs
Certificates of deposit (CDs) provide a fixed interest rate for a specified period, offering a predictable return on investment. While not as liquid as other assets, CDs can be a reliable option for preserving capital and earning a modest return that keeps pace with inflation.
#7 Money Market Accounts
Money market accounts invest in short-term, low-risk securities, making them a safe option for preserving capital while earning a competitive interest rate. These accounts often offer check-writing privileges and ATM access, providing liquidity for your funds.
#8 Commodities
Investing in commodities like oil, natural gas, and agricultural products can provide a hedge against inflation by allowing investors to profit from rising prices. Commodities tend to appreciate during periods of inflation as the cost of goods and services increases.
#9 Alternative Investments: Wine, Artwork, Farmland
Alternative investments, such as wine, artwork, and farmland, offer unique opportunities for diversification and inflation protection. These assets often have low correlation with traditional stocks and bonds, making them attractive options for preserving wealth in times of inflation.
#10 TIPS (Treasury Inflation Protected Securities)
Treasury Inflation Protected Securities (TIPS) are government bonds designed to protect investors from inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI). TIPS offer a guaranteed real return, making them a popular choice for investors seeking inflation protection.
#11 Improving Your Work Skills
Investing in yourself by improving your work skills can be one of the best ways to combat inflation. By acquiring new skills or advancing your education, you can increase your earning potential and stay ahead in a rapidly changing job market.
#12 College or Other Degree
A college degree or professional certification can provide a significant return on investment by opening doors to higher-paying job opportunities. Investing in your education can help you stay competitive and increase your earning power over the long term, helping you beat inflation.
#13 Investing In Your Financial Literacy
Educating yourself about personal finance and investment strategies is essential for navigating the complexities of the financial markets.
No one, including inflation, can ever take your education away from you. Read books that get you in the right wealth mindset or get started with basic personal finance reads. Buy them, check them out at the library, or borrow from a friend; just get going on investing in yourself.
Oh and hey, congratulations on making an investment in yourself by reading this article. You’re on your way!
TL;DR
- Real estate and stocks offer long-term inflation protection with potential for appreciation.
- Cryptocurrency and gold provide alternative hedges against inflation due to their scarcity and intrinsic value.
- High yield savings accounts, CDs, and money market accounts offer safe options for preserving capital while earning modest returns.
- Commodities and alternative investments like wine and artwork can diversify your portfolio and provide inflation protection.
- Treasury Inflation Protected Securities (TIPS) guarantee a real return adjusted for inflation.
- Investing in yourself through education and improving financial literacy is essential for long-term financial success.
- Seek professional advice and do your research before investing.
