6 Investment Strategies To Beat Inflation
Inflation has been exceptionally low over the past few years. But it has risen and continues to rise. Any general rise in prices, however little, eats away at the value of money. The best way to deal with this fact as an investor is to pursue strategies that benefit from inflation while avoiding those that are negatively impacted by it.
- Keep Cash in Money Market Funds of TIPS
- Avoid Long-Term Fixed Income Investments
- Emphasize Growth in Equity Investments
- Convert adjustable-rate debt to fixed rate
The article also offers the following general advice:
- Commodities tend to shine with inflation
- Inflation is usually kind to real estate
Full explanations for the foregoing recommendations can be obtained here. However, I will say a word about a couple of them.
Money market mutual funds are perfect for those who want a safe place to park cash while still getting some return. I have used them myself as a way of saving for a rainy day. If you’re looking for a way to put part of your capital into funds that are risker but higher yield while keeping a reserve that you can readily draw on, then you should consider the many competitive money market mutual funds on offer. Such funds are also good to have during periods of high inflation. As the article correctly states:
While it’s true that money market funds currently pay next to nothing, they’re the cash investment of choice during periods of rising inflation.
Here are two reasons why this is true:
- Because the rates they pay fluctuate continuously with interest rates, and they automatically adjust upwards as interest rates rise. There’s no need to chase higher yielding cash-type investments.
- Since money market interest rates rise with the general market, you won’t have to face the loss of market value that plagues fixed-rate investments during times of inflation.
When inflation hits, money market funds are interest-bearing investments, and that’s where you need to have your cash parked.
As for investing in commodities, you should be very cautious. The commodities market is one of the most volatile. Precious metals and the like may be unaffected by inflation; but putting your money into them may be like jumping out of the frying pan and into the fire. You want to be very careful about investing in commodities as a means of protecting yourself against inflation.
The bottom line is this. Though inflation has been relatively low, you never know when it will rise again. You should position yourself now—today—in a way that will enable you to earn money regardless of where general prices stand.
About Christopher Reid Chris was born in Washington, D.C. and lives in Britain. He works as a blogger, essayist, and novelist. His first book, Tea with Maureen, has just been published.