Tips to Fight Inflation Through Investments

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Major central banks around the world monitor inflations as close as they can. Whenever inflation appears, it sends mixed signals, depending on who’s the receiving end.

However, for those who have investments, inflation is almost always a force to reckon. It’s among those things that investors almost always want to beat.

If you’re one of those investors, see these tips that we got for you. Using and integrating them to your investment management will give you better chances of beating inflation.

Invest in Some Stocks

If inflation appears, it could be a good piece of news for the stock market. Meanwhile, those who dabbling in the bond market usually bears the brunt of the effect.

That is the reason why it might be a good idea to invest some amount of money into stocks. You can get lucky and benefit from this perceived trend.

You can also buy preferred stocks, which are highly liquid stocks that pay higher yields than most bonds. They also decline in price much less than the bonds when inflation appears.

You may also consider utility stocks, which are stocks that rise and fall in a predictable fashion along with the economic cycle. These stocks typically pay out dividends too.

Diversify to Foreign Markets

If you are in the US, you can find many major economies around the world that do not rise and fall according to US market indices.  Among these are South Korea, Australia, and Italy.

By investing in securities from these countries and others similar to them, you may be able to hedge your portfolio against domestic economic cycles.

You may also consider investing in bonds from these foreign countries. They can provide you some exposure to fixed income that may not suffer in price if inflation rages in the domestic market.

Real Estate Investment Trusts

Real estate investment trusts (REITs) have holdings in residential, commercial, and industrial real estate. These also often pay higher yields when compared to bonds.

These are really good hedge to inflation because their rates almost certainly won’t change even if inflation appears. That’s because the operating costs will also remain largely the same.

Treasury Inflation-Protected Securities

Treasury Inflation-Protected Securities (TIPS) are made to grow in value to catch up with inflation. The bonds are connected to the Consumer Price Index (CPI), and the principal amount is reset according to the movements of this index.

In the secondary market, these securities have dropped in value by 10%, which may mean that they’re currently at bargain prices now.

They are a good buy because they haven’t priced in the possibility of inflation. They won’t offer huge returns, but they are a better bet than Treasuries if inflation rears its head.

Senior Secured Loans

You can also invest in senior secured bank loans if you want to earn higher yields while also protecting yourself from inflation.

These securities have prices that rise with rates, as the value of the loan goes up as rates go up.  You just have to remember that there may be a substantial time lag.