When the price of goods and services experience a sustained increase, it is referred to as inflation. This means that a carton of milk that was available for $4 may not cost $5. The value of a country’s currency is eroded by inflation over time. Inflation can be influenced by a variety of factors and there are debates about its primary cause. However, as far as investors and consumers are concerned, the end result remains the same; prices increase. This can be bad news for consumers because it means that they have to pay an ever-increasing sum of money for purchasing the same number of goods and services each year.
In contrast, these rising prices can actually be good news for investors. How? The key to make money during an inflationary environment is to make investments that increase in value at a rate higher than inflation. There are a plethora of investments that have been considered as hedges against inflation. What are they? Let’s take a look:
This is a popular choice of investors because not only can the resale value of the property increase over time due to rising prices, but it can also be used for generating rental income. As inflation rises, the value of the property also increases and you can increase the rent charged from tenants over time. This means that the income generated from an investment property is able to keep up with the general rise in prices in the economy.
Another popular hedge against inflation is gold. During inflationary times, a number of investors decide to invest in this precious metal, which gives its price a boost. While other precious metals such as silver also gain value during inflation, but gold usually makes the headlines because its price increases are the most drastic. Plus, making gold investments is also easy these days as you can use websites such as First Fidelity Reserve to do so.
Similar to gold and real estate, oil prices also move with inflation. This increase in cost also boosts the price of gasoline, which is then passed onto the price of every good that’s produced by gas-powered machines or transported by trucks and other vehicles. As it is not possible for modern society to function without fuel for moving vehicles, oil can be very appealing to investors in times of inflation. There are other commodities such as orange juice, cotton and soybeans that also gain in price during inflation.
The same logic is also applicable to stocks as rising costs are generally passed to consumers by companies. Therefore, stocks also have a good chance of keeping up with inflation. There are some companies that are in a better position to pass on rising costs to the consumers as their demand will remain constant despite the price increase. Toilet paper and toothpaste are examples of such goods that are always needed and consumers will continue to purchase them.
Throug these investments, people can stay safe even during inflation.