June 13, 2024

Inflation in newspapers

Implies To The General Rise

Inflation implies to the general rise in prices in an economy over a certain span of time. The Federal Reserve generally targets a low and stable rate of inflation of about 2%, which is an indication of a growth economy. Kavan Choksi Finance Expert, however, does point out that this rate of inflation may go higher or even creep into the double digits as a result of economic shocks. It is important for investors to revisit their portfolio and ensure that their assets are properly diversified to deal with the threat of inflation. A diversified portfolio that is not too heavy in a single asset class is usually a good way to not only protect the finances from inflation, but also to grow wealth during this time. 

Kavan Choksi Finance Expert mentions a few ways to profit from inflation 

There are multiple ways to not just protect money from inflation but actually emerge from an inflationary period with greater wealth. Investing in certain tangible assets is widely known to be an inflationary hedge.

Here are a few common inflation hedges that can help keep people afloat as prices rise:

  • Real estate: Single family homes financed with low, fixed rate mortgages usually perform well during inflation. As inflation rates go up, these properties are likely to appreciate in value while the monthly service cost of its mortgage stays the same. By investing in real estate, one would also be insulating themselves from rising rents. Similar to many other goods and services, rents also go up during inflation surges. While mortgages might not be as flexible as rental agreements, they do provide an advantage when inflation is high.
  • Value stocks: Value stocks usually perform better in comparison to growth stocks during periods of inflation. Value stocks are companies that have strong earnings relative to their current share price. They are also known to have robust cash flows, which investors typically value when prices are rising. On the other hand, growth stocks are generally more sensitive to changes in interest rates, which essentially is a common monetary policy response to inflation. 
  • Commodities: Investing in commodities including gold and other precious metals can be a good way to keep the investment portfolio protected during inflation. As the demand for commodities goes up, prices rise in the economy. The cost of production to meet that demand generally rises in lockstep. Hence, commodities are often seen as safe-haven assets during times of uncertainty.  Even if they do not represent any underlying business or pay dividends, commodities are uncorrelated to the traditional asset classes of stocks and bonds and therefore tend to move in an unrelated direction.
  • TIPS: Treasury Inflation Protected Securities, better known as TIPS, are marketable U.S. Treasury securities. They are aimed at combating purchasing power erosion. TIPS are known to have the advantage of periodic inflation adjustments, which is a characteristic that standard fixed-rate bonds do not have. Investors exploring ways for capital preservation and purchasing power stability may consider TIPS as part of their lower-risk portfolio segment. 

Ending Note : 

On the whole, as Kavan Choksi Finance Expert mentions, inflation can make investing challenging if one is not prepared for it, but there certainly are investment avenues that fare well enough during periods of rising inflation. Commodities, real estate and TIPS are all popular investments that generally maintain value and generate returns even during periods of economic fluctuations.

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