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Can You Benefit From Inflation?

President Biden has claimed this recent bout of inflation is only “transitory.” However, many people worry that this isn’t the case: Inflation may well be here to stay.

So, then, we’re going to have to learn to live with it. You may be wondering: Is it possible to not just live with, but actually benefit from inflation, with the right tactics? Today, we’ll explore this question.

First, let’s talk a little about what inflation is: Basically, it’s the rise in prices in an economy over a specific period of time. The Federal Reserve typically targets a specific rate of inflation: about 2%. However, it can creep up higher as a result of economic shocks. In the 2000s, inflation rates fluctuated between 2% and 5%. Then, in the 2010s, I dropped down to between 2% and 0%. In other words, prices were remarkably stable for the past decade.

However, about a year ago, inflation went up to 5.4%, and, in June, it stood all the way at 9.1%. Obviously, this is far, far above the target rate. In fact, it’s the highest rate in over 40 years.

What To Do About Inflation

Inflation creates more uncertainty in the economy. Higher rates tempt action by the Fed, who raise rates in response. This can then cause stock market volatility in the short run, and for bonds to lose value over time. If nothing else, the threat of inflation, and increased uncertainty, is another reason to revisit how you’ve chosen to invest your money. It’s important to ensure your assets are diversified properly.

A diversified portfolio is one that isn’t too heavily dependent on any one type of asset. This is a good first step toward keeping your finances protected. Rest assured, there are places where you can put your money that can allow you to compensate for inflation. Reach out to us to learn more.

while inflation reduces the value of each dollar, hurts retail customers, and can potentially hurt retirees living on fixed income, there are actually some benefits to it. Make the right moves, and you can not only mitigate the effect on your money, but even leave the inflationary period in a better position.

Benefit From Inflation?

Inflation benefits holders of fixed-rate debt, such as mortgages. It encourages consumption today rather than later, and lower inflation can be a sign of a growing economy. Furthermore, there are some assets that you can purchase in order to hedge inflation:

First, real estate. Single-family homes financed with low, fixed-rate mortgages tend to perform well during times of high inflation. As it increases, your property is likely to appreciate in value, while the monthly service cost of your mortgage will stay the same.

Next, value stocks. This refers to stock from companies that have stronger earnings relative to their current share price. They are known to have robust cash flows, which investors typically value when prices are rising: they tend to do better than growth stocks during times of inflation.

Lastly, there are commodities. This category includes gold and other precious metals, as well as other raw materials and various natural resources. As demand increases, prices rise, and the cost of production to meet that demand typically rises in lockstep. Commodities are generally seen as a “safe-haven” asset during times of uncertainty. They are unconnected to traditional investments like stocks and bonds, and tend to move in an unrelated direction.

Be Aware of Your Inflation Rate

What’s your inflation rate? Where you’re spending money can tell you a lot about how you’re being impacted by inflation, and where you should focus on cutting back. You can learn more about how to manage your assets smartly, by reaching out to us. We can help you keep your portfolio balanced.

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Retirement
Melissa Brooks

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