It’s hard to see your money seep out of your bank account and portfolio when high inflation rates take hold. As we watch our cash slip away to cover higher grocery bills or a full tank of gas, we wonder if there’s any way to make this easier on our wallets and our portfolios.
Learning how to invest money during inflationary periods is also about knowing where to stash your cash. Here are a few ideas that could help you weather the inflation storm.
Review your budget
The first place you’re likely to see inflation impact your bottom line is with your budget. Costs for line items like food, gas, and electricity usually rise at a steep rate, and this is where new budgeting strategies can make a difference.
Take coupons to the grocery store or buy generic items instead of name brands. Turn your thermostat down a degree or two and grab that extra throw blanket for your couch. Then track your progress and see how those little changes save you some money.
Diversify your investments
The old adage about not keeping your eggs in one basket is even more true during times of inflation. Diversifying your portfolio could help you stay on track toward your long-term investment goals.
If you have different types of investments, then the market’s impact on your investments might also vary. One investment might lose value, but another might retain or even gain value during those same market conditions.
How you diversify your investments depends on your financial goals, tolerance for risk, and short- and long-term needs, but there are many smart strategies to diversify your portfolio that you might investigate.
Choose the right CDs
Certificates of deposit (CDs) are great things to add to your portfolio if you’re looking for a stable asset with predictable growth to help you ride out the inflation wave. Not all CDs are the same, though. Consider things such as which bank you want to work with, how long you want your money tied up, what kind of rate of return you expect, and how much you want to invest.
Bonds could be another place to put your money if you’re looking to diversify. You can choose from corporate bonds issued by private and public companies, municipal bonds from local governments, or treasury bonds by the federal government.
You may even want to consider I bonds, which are government-issued savings bonds specifically focused on protecting investors from inflation. Be aware that bonds are issued for a specific term, which may affect when you will receive the full amount that you’ve invested.
Pick up some TIPS
Another potential option for your portfolio at the moment is Treasury Inflation-Protected Securities (TIPS). These are issued by the U.S. government and payments are adjusted if inflation goes up. Make sure you consider how fast or how high inflation is increasing when you buy these bonds. You may be better off investing your money somewhere else if inflation slows or even stagnates.
Invest in stocks
Stocks may seem a little intimidating for new investors, but some research ahead of time can help you put together a strong stock portfolio for years — and maybe even decades — to come. Think about what stocks you want to invest in or how much you want to invest. Then consider how you’re going to get those stocks.
Some investors will contact a broker to help them navigate the stock market while others dive in on their own by investing in stocks online. From there, it’s just a matter of deciding which stocks you think might get the best returns based on your short-term or long-term goals.
Buy real estate
Even when housing prices are high, it doesn’t necessarily mean investing in real estate is a bad idea. Typically, mortgage rates are low during these times, so you can borrow money without having to worry about paying a lot in interest over the life of the loan. You can also make money by buying a fixer-upper and renovating it yourself, or updating a house to resell it for a profit.
Invest in REITs
So you want to own real estate, but you don’t want all the responsibilities of owning real estate? Consider a real estate investment trust (REIT). A REIT is a portfolio of properties with everything from office buildings, hospitals, malls, and more. It’s a great investment if you want a more liquid real estate asset, and may be a smart fit for risk-averse investors.
Invest in gold
If you already have stocks or bonds, diversifying your portfolio with a commodity could be a smart plan, and one way to do that is with gold. While you can buy gold bars or gold coins and own that physical asset, you’ll have to worry about insuring and protecting it.
If you’d rather not deal with the hassle and expense of storing gold bars and coins, you could also invest in a gold IRA or precious metals mutual fund. Both may be easier to buy than physical metal.
You can learn more in our guide to how to buy gold.
Consider other commodities
Gold isn’t the only commodity you can own. Oil and gas, foreign currency, and even beef and orange juice are considered commodities. A commodities exchange-traded fund (ETF) might be a way to mitigate inflation losses, especially if it’s an ETF focused on commodities that are skyrocketing in price due to inflation.
Invest in cryptocurrency
Cryptocurrency has become all the rage in financial circles, but what is it exactly? It’s digital money, bought and sold by investors and secured by networks of computers. You’ve probably heard of some examples, such as Bitcoin and Dogecoin.
Investing in crypto might be an option if you’re comfortable with more risk. You can learn more in our guide to how to buy cryptocurrency.
Buy fine art
The art market continues to expand with pieces being sold at auction for more than $1 million. Don’t have that kind of cash? Companies like Masterworks allow you to invest in just a small portion of a piece of art and when the piece is sold in a few years, investors hopefully reap the reward.
You don’t have to sit by and let inflation wreak havoc on your bottom line. Instead, find ways to be proactive by taking steps that could help protect your assets from inflation. You might even be able to use the time to your advantage.
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