“Money Makes the World Go Round”. True, isn’t it? Money does in fact make the world go round. Given that money is one of the most important resources that can be acquired and be used in the exchange for the things needed for survival, handling and managing this particular resource will determine the path of security that individuals take into account.
Nonetheless, there are simply some things that cannot be personally controlled by any individual. One is that of the vast system by which the economy operates. The sudden fluctuations that happen within months and sometimes within days, largely affect the value of money that we have on hand and the cash that we may have in the bank or enrolled in other forms of investments.
One of the most problematic issues in the economy that often dictates the fluctuating value of money is inflation.
What Is Inflation?
Inflation is basically what makes things expensive. For example, a can of peanut brittle could cost 2$ now, but in the near future, it could cost 4$ or maybe 5$. The increase in prices of basic items you need on a day-to-day basis is caused by inflation.
Money is continuously being affected by inflation. Another example, today you can probably buy multiple items for 10$, but in the future, what you can buy 10$ will significantly be lesser.
In the United States, inflation is measured by what is called the “CPI” or the “Consumer Price Index”. This is calculated by the “US Bureau of Labor Statistics”. CPI has a yearly average that increases the cost of products.
Inflation is the term used to identify the increase in prices of basic day-to-day products. Inflation is also used to identify the continuous decrease of the value of money. As we all know already by now, money is extremely valuable and is necessary for survival in today’s society.
The thing is, money, as valuable as it is, is slowly decreasing in value. For example, perhaps in the past, you could buy a number of items for only 10$, but now if you go to a supermarket, you could probably only buy half of those items with the same amount of money.
The same is for properties, rent, and mortgages. So in general, inflation affects the prices of everything. Inflation is measured by what the “US Bureau of Labor Statistics” call “CPI” or the “Consumer Price Index”. According to the government institution, CPI increases gradually over the years by 3.5%. While 3.5% doesn’t sound like much at first, but if you look at it from a look long term perspective, you’ll see that it will start to largely affect your savings in the near future if it hasn’t already.
Preparing for the inflations can be simple yet also difficult. Here are a few simple steps you can take to protect the value of your hard-earned money to make sure that you can keep up with the price changes brought on by inflation.
What it means to Invest Your Money during Inflation
Investments are very common in today’s society. Many people invest their savings to increase their returns. This process can be very rewarding, but can also be very risky. Let’s take a look at the benefits first.
Investing your money can grant you a better return. If you’re the type who wants to play it safe, you can consider investing in term deposit accounts that offer significantly higher rates, but the downside is that you can’t withdraw money for a certain period of time. Now, this is generally safe and can guarantee a better return of your money.
The risk is that if you’re a sloppy investor, you could end up losing your investment money altogether instead of getting a better return. So basically, investing comes with its own pros and cons and its upsides and downsides, but if done right and smart, it can be very beneficial to you in protecting your savings from inflation.
Investing Your Money in Equities and Mutual Funds
If you want to invest your money but also conserve it at the same time, you can consider doing some investments in equities and mutual funds. This can be very cost-friendly because stock market security allows you to invest your own desired amount of money instead of having to follow a set amount.
Mutual funds have lower risks and are involved and you’ll have assistance from a professional manager for your money.
Equity investments on the other hand require more research and experience in order to be beneficial. Looking at equity investments with a long-term perspective helps you to understand the risks and rewards that come with it.
Equity investments and mutual funds are two of the most common types of investments present today. They can both be very lucrative and both can guarantee you a large return. Though if you consider yourself a newbie in the world of investments, you can consider trying out a mutual fund.
Mutual funds have a high rate of success and can offer you a large and lucrative return. Mutual funds don’t require you to have that much experience and are very easy to understand. The risks involved in mutual funds are relatively small but to make things better, you won’t be alone, you’ll have a manager who’ll be in charge of your money and assist you in your investing.
Equity investments on the other hand are a tad bit complicated. These types of investments require a certain amount of experience to be successful. The risks are significantly large and require research before beginning. You also have to look at equity investments from a long-term perspective to have a more realistic outlook on your investment.
Investing Your Money in Real Estate
Real estate investments compared to other investment methods have a higher success rate. Investing in a physical entity can be very rewarding. Investing in a property that has carefully been considered and researched has been proven to pay off significantly.
When inflation increases, the value of the property you invested in also increases. You can also acquire great income from renting that property to others.
The thing is, you have to carefully consider your investment plan when it comes to real estate. If you have a faulty plan and haven’t considered all your options yet, it is highly likely that your investment won’t exactly yield good results.
Understanding Inflationary Depression
I’m sure all of us have heard the term “Inflation” by now. The term is widely present on the internet, the news, and social media platforms. But there is another term that often confuses a lot of people; Inflationary depression.
Inflationary depression is an economic and financial term that needs to be understood more closely if surviving it is to be considered:
Inflationary depression is caused by the continuous negative effect on the value of money over the years by CPI. If things don’t start going the right way, we could look at another depression in the economy caused by inflation. I’m sure we’re all familiar with the depression that went on in the past. If things don’t get better from here, it could quite possibly happen all over again.
Now that we’ve gotten that out of the way, let’s see how we can prepare for a likely inflationary depression in the future.
Now let’s discuss some of the basic ways we can prepare for an inflationary depression.
Preparing for Inflationary Depression
Investments aren’t uncommon anymore in today’s society. Many people invest much of their savings to get a better return in the future. There are chances that you can double or even triple your investment if done right and executed well of course.
Experience and intellect are important to make a successful investment that you can benefit greatly from in the future. Now let’s take a look at some of the common types of investments you can engage in.
Another form of investment is investing in gold. Gold is very straightforward. Gold is a resource that doesn’t decrease in value over time. Its value seldom gets affected by the continuous rise in inflation. You can invest your money into gold because as the value of money decreases, the value of your money in gold doesn’t.
Going gold through your portfolio will benefit you in the long run because it pertains it value through time. So if you’re considering investing your savings into gold that might be a very beneficial option for you based on of course your own preference.
Investing on Assets to Protect Your Funds during an Inflation
You can do a lot to prepare for a likely inflationary depression. If you’re smart and cautious enough, you can be very successful in investing and avoid a crisis because of inflationary depression. Just make sure to have someone experienced guiding you along so that you don’t end up losing your savings over a bad investment.
For this post, at least nine primary assets for you to invest in shall be highlighted:
The basic commodities humans need to survive will always be earning profit even in the middle of inflation. Investing in commodities is often done through Exchange-traded funds (ETF).
When considering the idea of investing in commodities, you need to understand that this asset is largely dependent on the rule of demand and supply. Hence, the price of interest you can get as a form of profit from the investment you put into this asset will largely be affected by the sudden dip and rise in the prices of resources needed to produce the basic commodities.
Hence, when you engage in investing in commodities, you ought to be able to track your investments. Several investment policies offered online specifically provide online tracking systems that will allow you to see how much your investment is making.
TWO: 60/40 Stocks, Bonds, and Portfolios
When investing in stocks, bonds, or company portfolios, you need to be aware of the risks and measure them along with the benefits that your investment is going to make.
The 60/40 option is a mixed system of stocks and bonds invested in conservative portfolios.
However, given that the investment is mixed, tracking each investment policy may not be that easy nor may it be practical especially if you are living a busy life as well to make your main income.
To help you out in engaging successfully with a 60/40 stock and bonds investment, you might want to hire a financial advisor to help you in the process of tracking your profit and be given the advice that you need when sudden drops and rise in the market happens.
When looking for the right financial advisor, it is best to look into the background of your candidate. It is best to have more than just one candidate for a trustworthy financial advisor or investments mentor. It is essential that you know better how your candidate has operated in the past. These records may be available online. Take note that your success in investing in stocks and bonds, no matter how seemingly conservative and low-risk the investment may seem, will largely depend on the person or financial agency you choose to partner with.
THREE: Land, Properties, and Real Estate
Real Estate Investment Trusts (REITs) has been given a brief introduction earlier in this post.
To gain a clearer understanding of this form of investment, it is best to know that REITs real-estate companies that offer their stocks and bonds for external investors. A REIT company is an umbrella that includes several real estate organizations that pay out dividends to investors.
Among the REITs most known in the market today include the Vanguard Real Estate ETF. This company has established a long and trusted reputation both in real estate and in the field of investments.
Although this option is considered lucrative, it is also considered risky and does present certain drawbacks along the way.
Among the drawbacks include the responsibility of REITs to pay for property taxes. On average, such tax responsibility often account for at least 25% of the overall profit that the company gains. This may result in reduced cash flow that will affect investor’s earnings.
Hence, when picking this particular option of investment to prepare yourself and protect your funds when sudden inflations happen, you ought to find an experienced financial manager or a financial agency that promises to offer you the support you need to enter in an investment with REITs. Often these individuals and agencies know which REITs are most trustworthy based on the knowledge they have on the market performance of the companies and how investors of these organizations are provided and paid for.
FOUR: S&P 500
If you are aiming to put your investment in businesses, you ought to pick organizations that are consistently growing. This requires an assumption on what industry is likely going to continuously grow towards the future.
What other industry is more successful than the industry of communication and technology. For the past 20 years, this industry has incurred steady growth. It is expected that in the future, such growth will retain its power and will continue to affect the investor’s profits positively.
What makes businesses in the communication and technology industry among the best factors that offer high investment returns?
One is that this industry is not completely based on natural resources, which are often scarce and have a highly fluctuating behavior especially in terms of availability. Often, investors who choose to invest in natural resources lose their profit in the long run. The negative assumptions in the availability of natural resources and the consistency of earning from it largely affect the attitude of investors towards this industry.
On the other hand, when it comes to communication and technology, the production of items, later considered as necessities continue to rise. Every year, several profit-earning items are being produced under the direction of the communication technology industry. Businesses engaged in this industry are consistently in competition and big players in the industry are considered to be in constant hustle with new and incoming challenges.
When picking a company to invest in under the S&P 500 qualification, you need to choose from the best performers. Because the industry is highly competitive, investors of large companies are often the ones getting the most amount of investment returns. Asking the help of a financial manager or investments advisor could help in providing you a better and more effective way of picking the right company and scheduling how much investment you might want to put forward in support of your chosen company.
Although already discussed earlier in brief, it is important to understand how investing in gold works.
Gold has always been considered as an alternative currency to money. Based on history, gold has been one of the earliest forms of currency used by human communities in trade. What makes gold an interesting element of investment?
First, it is physical; you can actually see it and touch it- making it easier for doubtful investors to be motivated to take the risk especially because the item they are investing in is tangible.
Second, gold is also considered to be among the most valuable assets in the market that prolongs its rate of value for a very long time.
While all these are true about gold and the benefits of investing in it, it has been observed through time that gold is not completely the perfect hedge you can trust in protecting your assets from sudden inflation.
In terms of banks, interest rates are dependent on monetary policies. With this in mind, it could be considered that as the interest rate heightens due to monetary policies, gold’s value may not move at all.
To invest in gold you might want to check through the investing value of gold at SPDR Gold Shares ETF.
SIX: Real Estate Property Income
Do you have a property you can rent out?
If you have, then you can be assured that you will be safe even in the midst of inflation. Why?
The rate of rent or lease you require for your property to be paid for by tenants only rises in pricing rather than dipping down low. This means that every year, you ought to consider the fact that your return on investment will rise accordingly.
However, when investing in real estate properties through collecting lease and rent payments, you also need to put into the picture the number of operating expenses you use to maintain your property and keep your tenants satisfied.
So, if you have enough money to buy your own property, you ought to take the chance and protect yourself from the massive impacts of inflation later. Another good factor in investing with real estate properties is that if you feel that you already want to stop renting out your property to tenants, you can simply sell your property at a much higher value compared to when you have bought it.
The truth is, when it comes to measuring the value of real state property, it increases through time- which means you will always earn something from liquidating this property later.
Nonetheless, as noted earlier, investing in a real estate property through renting or leasing out to tenants is that it is more like managing a business than simply putting your money into an investment policy and let the money do the work.
As a landlord, you have responsibilities that highlight the need to satisfy the demands and expectations of your tenants. You also have legal obligations and tax responsibilities you need to pay for. Hence, it will be an investment choice that will require you to work more rather than just see your profit increase along the way.
SEVEN: Aggregate Bond
If you are interested in investing in bonds in the US, you may want to check the data presented by the Bloomberg Barclays Aggregate Bond Index. If you are familiar with earning from bond indexes such as government, private or corporate, and municipal bonds, then you might want to choose this option of investment.
Nonetheless, when choosing this form of investment, remember that it will be hard for you to focus your investments only on this one option. The categorization of companies that are included in the index is measured on an organization that has the most debt. For this reason, the choices on which companies you could invest in are not properly diversified.
EIGHT: Leveraged Loans
What are leveraged loans? These are debts that characterize the company’s credit record. Hence, these companies are willing to go into debt or loans with higher risks- making it harder for them to simply drop out from their commercial past in the industry. Investing in these companies means allowing your money to be used as a form of funding for their operations and other financial needs and paying you higher interests within shorter times.
Also known as Collateralized Loan Obligations or CLOs- these are loans that are pooled into one security. When an investor opts to take this option, receiving scheduled debt payments will be the primary source of your residual income from your investment.
To check what possible investments in CLOs you might engage in, the data provided by investor Senior Loan (ETF) may provide you the information that you need to make that important investment decision. In making this decision though, you need to understand that because the returns are high, the risks are also high.
NINE: invest in TIPS
TIPS or Treasury Inflation-Protected securities is an investment in the US Treasury Bonds. Unlike Leveraged loans, investing in TIPS offer a fixed rate. You can choose the maturity of your investment in TIPS between five, ten, or thirty years.
The return of investment in TIPS is affected by deflation and falling CPI rate. It is also affected by any change in the current interest rate. Because of this, you may lose more money than what you may earn from this type of investment. Nonetheless, if you have the assistance of a good financial manager, you may actually earn good money from this investment.
Other Considerations on How to invest during inflation
In terms of investing in anything, you must remember these four important things:
FIRST: Research Deeper
Like in any kind of decision, knowing more is better than assuming.
When it comes to finding an asset to invest in to strengthen your financial stability in the middle of inflation, you need to invest your time and effort in researching deeper about the assets you want to pick to put your money into.
SECOND: Be Flexible
Money only becomes a flexible asset if you decide it to be. In terms of investing to help you thrive through inflation, it is important to not focus on only one form of investment. Engaging in mixed investments is a critical part of defining the rate of profit that your investment will earn in a dedicated time.
Depending on how much you have to invest, it will be best for you to check which types of investments you can engage in.
THIRD: Do not Be Afraid to Ask
Your hard-earned money should be taken good care of.
Investments are supposed to protect your hard-earned money from being lost just like that. It is the goal of every investor to grow their hard-earned money and hopefully protect themselves from future financial fluctuations.
So, if you have the money but do not clearly know what to do with it, never be afraid to ask.
The internet offers different suggestions that can help you engage in worthwhile investments. Financial managers, investment advisors, and other individuals and agencies that are ready to guide you in finding the right investment policy to engage in are readily available online.
However, when you do choose to find your advisor online, you need to remember to be cautious all the time.
Researching the background of your chosen candidates can help you in avoiding any possible scams that may put your money in danger and your supposed profit in jeopardy. Contacting your candidates from where you will get assistance is critical to making sure that you understand each other and that he or the agency can give you the possibility of experiencing your expectations and demands accordingly.
Inflations cannot be avoided. The economy will behave in many ways it will depend on the changes in society. Accordingly though, preparing for these inflations and protecting your funds is possible.
So, if you have become interested in investing to serve as personal protection from going through inflation, you ought to be cautious and find the best way possible to find an investment policy that fits your available funds and the range of time that you hope to earn from your policy.