Make money in inflationary times

Posted: borgivan Date: 25.05.2017

Inflation presents special challenges to investors. Even if your investments are growing in value, inflation is still reducing that value on the backend. So how do you find investments that benefit from inflation, instead of losing their value? With inflation now being officially invisible, interest rates are downright microscopic.

Still another alternative is Treasury Inflation Protected Securities , or TIPS, issued by the US Treasury. And each year the value is adjusted based on the Consumer Price Index CPI.

This gives you regular interest income, plus an annual adjustment for inflation to your principal value. The worst investment to put money into, during periods of inflation, are long-term fixed rate interest-bearing investments.

This can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer.

5 Things You Can Do Now to Prepare for Rising Inflation -

The problem with long-term fixed income investments is that when interest rates rise, the value of the underlying security falls as investors flee the security in favor of higher yielding alternatives. Long-term fixed income investments are excellent when inflation and interest rates are falling. Many investors try to balance out their equity portfolios by investing in high dividend-paying stocks, or in growth and income funds, and this can work especially well during periods of price stability.

But when inflation accelerates, it can hurt your investment returns.

This is at least in part because high dividend paying stocks are negatively affected by rising inflation in much the same way long-term bonds are. The better alternative is to invest primarily in growth type stocks and funds.

5 things you can do now to prepare for rising inflation -

You should also emphasize sectors that are likely to benefit from inflation. These can include energy, food, healthcare, building materials and even technology.

5 Things You Can Do Now to Prepare for Rising Inflation -

Precious metals come to mind immediately, particularly gold and silver. You can also invest in gold mining stocks , or in funds comprised of these stocks. However, these are stocks, and not the actual metal itself. They also tend to be extremely volatile, even during times when gold prices are rising. A more predictable hold on the stock side will likely be energy stocks and funds.

This is especially important since rising energy prices are often one of the primary drivers in inflationary environments.

Over the long-term, real estate is also usually an excellent investment response to inflation. Real estate is actually the ultimate hard asset, and often sees its greatest price appreciation during periods of high inflation. This is especially true since as rents rise, people become increasingly interested in owning as a way of getting the tax benefits that help offset the general level of inflation.

You can invest directly in individual properties — residential or commercial — but you can also use real estate investment trusts REITS. However you handle it, real estate should have a place in your portfolio if you anticipate rising inflation. Technically speaking, this is not actually an investment move but it could be one of the most profitable strategies you can make in response to rising inflation.

Periods of low or declining inflation favor adjustable rates over fixed rates when you borrow money. But the dynamic reverses when inflation rises. Higher inflation results in higher interest rates, which means that as inflation accelerates, your adjustable rates will continue to rise — even to potentially unsustainable levels. If you believe inflation is coming, you should begin rolling your adjustable rate debt over to fixed rates.

make money in inflationary times

This should include credit cards, home equity lines of credit, and especially your first mortgage, if it happens to be an ARM. Converting them into fixed rate debt now is one of the best ways that you can protect your cash flow. Repositioning is important if you think inflation is coming. This is especially true since inflation has been low or declining for at least the past three decades.

Any steps you can take to prepare in advance will payoff handsomely, especially over long-term. How do you brace your portfolio for inflation? Helping make finance easy. Investor Junkie is your shortcut to financial freedom. We know that managing finances is not easy. We analyze and compare tools to help you make the best decisions for your personal financial situation.

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Here are six ways to brace your investments for this situation.

Keep Cash in Money Market Funds or TIPS With inflation now being officially invisible, interest rates are downright microscopic. Learn What the Wealthy Know Sign Up for Our FREE Weekly Newsletter. Learn wealth-building strategies to get you on the path towards financial freedom.

make money in inflationary times

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