Top Investments That Are Inflation-Hedges & How To Start Investing

Inflation is the silent killer of wealth. It is mentioned in the news and seen at the grocery store. Companies with supply chain interruptions more than two years into the pandemic, harming manufacturing and production deadlines and prices.

Share on facebook
Share on twitter
Share on linkedin
Investments That Are Inflation-Hedges

The Russia-Ukraine war has further contributed to increasing food and gas costs, and it will continue to exert pressure on the cost of products and services as long as consumer demand remains strong. Hopefully, you’ve considered how inflation affects your assets. If so, here are several assets that have withstood the test of time in terms of helping investors beat inflation.

Inflation is one of the most urgent issues. You may have discovered that your grocery bill has increased even though you’re purchasing the same food. In that case, you’re witnessing the effects of the newest inflation boom. While prices for products and services continue to climb, the more painful element for consumers is that we don’t know how long it will persist or how we should respond financially. For the average consumer, higher costs may imply restricting any splurge purchasing to prevent a significant knock to your pocket. If you invest, you’re probably concerned about your money losing value in the market. With no respite likely in the immediate future, those who haven’t already bolstered their portfolio with inflationary investments still have time to do so. Here are some areas where you should put your money right now.

Firstly, Understanding Inflation

In 10 years, a rupee will not be worth the same amount of money. It is inflation. Inflation is the rising prices for goods and services across an economy over time. The “inflation rate” is computed as a percentage change in a price index (a representative sample of goods and services) from one year to the next. The consumer price index (CPI) is the most used in the United States. However, economists may also use the producer’s price index (PPI) and personal consumption expenditures (PCE) price index.

Inflation of less than 2.3 percent is considered modest. It gets classified as mild between 2.3 and 3.3 percent and high between 3.3 and 4.9 percent. Inflation of more than 4.9 percent gets regarded as highly high.

Inflation isn’t always a terrible thing. Economists want to see modest, steady growth in prices because it indicates a healthy economy: firms are creating, consumers are purchasing, business, employment, and salaries are all increasing.

How exactly does inflation affect your money’s purchasing power?

Inflation can undermine your buying power, even if you retain positive returns. Investors should consider the implications of inflation on their portfolios since failure can erode buying power and reduce profits.

And cash is not the only thing that depreciates.

Those with low-interest bank accounts essentially incur losses during these inflationary times because the interest they give out gets consumed by the fall in value. Indeed, investments with fixed rates of return or interest will have their real-dollar earnings reduced during inflation.

While inflation affects all investors, income-seeking investors get struck particularly severely.

Investments that help you fight inflation?

Some asset types, in particular, lend themselves well to inflation-targeted investing.

  • Appreciation-oriented investments: Select assets that provide appreciation or growth rather than just income. Company stock is an excellent example.
  • Real assets: Inflation devalues nominal assets like conventional bonds since they get valued on the fixed interests they deliver, which depreciates as inflation soars. These real assets are tangible items that possess intrinsic worth. Consequently, their value grows in lockstep with inflation.
  • Assets possessing variable interest rates: In an inflationary atmosphere, everything that has a fixed rate will incur a loss. These offer your money a positive chance since they grow with inflation.

Effective Inflation Hedging Assets?

Inflation is taking place. However, to reduce the effect, you can consider investments that profit directly or indirectly from it. Investors must construct portfolios that outperform inflation.

When inflation is rising, certain investments do well. Selecting among these assets should consider your objectives and the severity of the inflationary environment.

  • Commodities: Commodities, another well-known inflation hedge, come into play here. Natural gas, oil, corn, wheat, and precious metals, are examples of raw materials. They may be exchanged on the futures market, which is where commodities futures contracts are acquired and sold at a later date. Commodity exchange-traded funds and commodity stocks are also available. In essence, commodities act as a natural inflation hedge. Commodity investors can earn a significant return on their investments when commodity prices rise to help fuel inflation in consumer products. Commodity price inflation has substantially contributed to the recent year’s inflationary pressures. As a result, in today’s inflationary climate, commodities exposure can provide inflation protection while also spreading the effect of inflation on one’s portfolio. Considering the commodities market’s fragility, experts advise engaging in commodities via a diverse investment vehicle, like a mutual fund or exchange-traded fund. Historically, gold has been a popular item for safeguarding your portfolio against inflation. Because gold prices are likely to track inflation, investing in gold gives you a higher chance of increasing your buying power on prospective investment returns. Although actual gold is preferred, it might be harder to get owing to the greater barrier to entry. However, gold ETFs make it easier to gain access to gold. When deciding how much to devote to commodities in your portfolio, investors should consider diversification because we don’t know which commodity will excel year after year.

Do not miss Real Estate Vs Commodities: Where To Invest in 2022?

  • Real estate: One of the numerous benefits of investing in real estate is that it protects your money from inflation. This asset class has inherent value, pays steady dividends, and is a perfect inflation hedge. Because real estate is a need in everyday life, it can keep pace with inflation. People will always want to house, and many enterprises will require a physical site. Regardless of the situation of the economy or the markets, everyone utilizes real estate. And, while returns may fall, overall (real estate) will be more stable, with a relatively swift comeback when conditions improve. In an inflationary economy, the value of the real estate, like commodities, tends to rise even faster. Since you’re retaining an asset that increases or appreciates (at) the same pace as inflation, hard assets automatically hedge (against inflation). Real estate is a physical asset, but it is also an illiquid one. However, you can explore other unconventional real estate investment vehicles like REITs and fractional ownership, which are more liquid investments that can be purchased and sold quickly in the market. In many circumstances, you may acquire a group of REITs through a mutual fund or an ETF. Investors should select assets that provide an income stream. It is another advantage real estate investments may provide if inflation rises because renters must still pay rent.
  • Stocks: Investing in a diverse stock portfolio is a good approach to combat inflation. For instance, from July 2012 through July 2022, the S&P 500—a prominent benchmark for US stocks—produced an annualized return of approximately 11%. (with dividends reinvested). After adjusting for inflation, the average yearly return is still at 8.3 percent. Even with today’s significant price increases, you would have soundly defeated growing prices: Inflation climbed at an annualized pace of around 2.9 percent between July 2012 and July 2022. To profit from this kind of historic growth, there’s no need to resort to choosing specific companies, which can be time-consuming and quite hazardous. Begin by selecting an S&P 500 index fund or ETF that tracks the index’s return while keeping fees to a minimum. They provide straightforward, low-cost diversification since they comprise hundreds of stocks, reducing risk and portfolio management difficulties. Passive index investing is the simplest approach to getting into equities and does not require stock-picking ability. Technology and other growth equities, which beat the general market, are the best inflation hedges. Consumer goods firms and those in the defense sector that generate necessities for people perform well. Remember that stock investing is never without risk. You may incur losses in the near term, and you have no control over the firms the fund invests in.

Do not miss Stock Market vs Real Estate – How Will Your 50L Grow In Volatile vs Stable Asset Class?

The Bottom Line?

Inflation may eat away at your money. So, investment for inflation is critical for wealth preservation. Despite constant concerns about increasing inflation, protect your savings. Holding one or more of these asset types has several advantages, including your long-term purchasing power. You or your investment adviser can change your plan to account for the degree of inflation.

If you are considering investing in real estate, Assetmonk is here to help you. Assetmonk is a well-known GrowthTech platform in India. It provides its investors with Grade-A commercial real estate assets at reasonable costs, with a guaranteed annual IRR of up to 21%. It also provides investors with the option of fractional ownership. It encourages investors to diversify their assets. Our asset and real estate specialists can also help you.

Investments That Are Inflation-Hedges FAQ'S

An optimal inflation hedge should have a significant positive correlation with price gauges, which means that as prices increase, your hedge’s profits should climb by at least the same amount.

Some common inflation hedges include gold, commodities, real estate, and stocks. When it concerns hedging against inflation, gold is among the most widely considered investments.

Related Articles

istockphoto 1312767508 612x612 1

What is National Securities Depository Limited (NSDL)

NSDL or National Securities Depository Limited is a financial institution that was established to keep securities like shares, bonds, etc in the shape of non-physical or physical certifications, that is in demat format. The securities are maintained in deposit accounts, which are similar to funds in bank accounts. It allows for quick securities transfer because ownership gets transferred merely by ledger entries. This is frequently done digitally, saving the extra time required in the previous practice of exchanging physical certificates once a deal was concluded. India’s capital market, which has been around for almost a century, has always been quite active. But, due to settlements that are based on paper, it had significant flaws such as poor delivery, prolonged transference execution, and so on.  To address these concerns, the Depositories Act 1996 was enacted and went into effect on Sept 20, 1995. This legislation mandated the Security Depositories establishment in India to manage securities.  Security is a financial asset that…

Read more
istockphoto 1176996544 612x612 1

Step-by-Step Process for Income Tax Login

Income Tax Login step-by-step process? To finish the E-filing of IT Returns, you must first successfully finish the registration procedure and connect to the IT E-filing site. You may utilize the e-filing site and a variety of services related to tax by finishing the income tax login process. The steps below will walk you through the process of finishing the income tax E-filing site login. Also, read Tax Saving via Deductions Under Section 80C 80CCC 80CCD and 80D. How To Do Income Tax Login? Step 1: Navigate to the Income Tax e-filing website. Select the “Login Here” option in the upper right-hand side of the site.   Step 2: After clicking the “Login Here” option, you will be sent to the Income Tax Login webpage.   Step 3: Also on the login screen, enter your User ID, which is your Permanent Account Number or PAN. Enter the password you created when you registered for your IT e-filing account. After you’ve…

Read more
istockphoto 1252264724 612x612 1

Everything about CSC Digital Seva Portal

CSC Digital Seva Portal is a gateway that provides info on numerous firms and electronic governance to inhabitants in remote and rural areas of India. A CSC facility’s full name is Jan Seva Kendra or Common Service Center. Common Services Centers or CSC is a network based in India that aims to transform India into a digitalized country. CSC Scheme 2.0 got started in Aug 2015 for improving accessibility to digital and technological services for citizens in remote and rural areas of India. The CSC Digital Seva Portal’s Goals Connect 2.5 lacs of Gram Panchayats in India. Citizens of India should access trustworthy and up-to-date info. In villages, all basic services are given in a single place. Deliver low-cost, services that are of high quality to average people. Governmental welfare and social assistance programs are promoted. Develop new rural jobs and promote rural entrepreneurship. Registration for the CSC Digital Seva Portal To commence the registration process, one must comply with…

Read more

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is an Open-ended Deferred Pension Plan. The scheme offers guaranteed return of 8% per annum for 10 years. Minimum pension amount is Rs. 1,000/ month and maximum pension amount is Rs. 10,000/ month depending on purchase price. Returns will be paid on a monthly basis. On maturity, the entire pension wealth will be paid in lump sum and no annuity will be offered thereafter by the Pension Fund Regulatory and Development Authority (PFRDA). The first installment of 5% or 50% whichever is lower is payable within 2 years from the time when account balance reaches Rs 1lakh/- which will happen after completion of 10th year under this scheme i.e before 2040s for most of us today! PMVVY is an Open-ended Deferred Pension Plan PMVVY is an open-ended deferred pension plan that provides guaranteed return of 8% per annum for 10 years. The scheme offers minimum pension amount of Rs. 1,000/ month and maximum pension amount of Rs. 10,000/ month…

Read more
EPFO KYC update for UAN

How to update KYC for EPF UAN?

KYC is being adopted by most of the government and private sector organizations for maintaining the proper records of official matters. The Indian government has already made it mandatory for employees as well as consumers to link their Aadhar card with various types of accounts and digital entities. Therefore, it is also compulsory for you to link your EPF with your Aadhar as well as other important digital documents. Don’t know how to do it? Don’t worry, we have got your back! In this article, we’ll learn how to update KYC for the EPF’s UAN and also go through the basics. Stay tuned until the end to understand it better.  What are the advantages of updating your EPF’s KYC details? A wide range of benefits can be reaped by updating the KYC on your EPF account. Some of those benefits are: You can make online withdrawal claims, which happen only after you link/seed your Aadhar with the UAN The transfer…

Read more
istockphoto 1353920585 612x612 1

EPF Form 10C – Benefits, Eligibility & Documents

EPF Form 10C is used to request a reimbursement of the employer share, the withdrawal benefit, and the scheme certificate for membership retention. An Employees’ pension fund (EPF) or Employers’ Pension Scheme is a retirement plan that EPFO enfranchises for employees working in organized sectors. Both the employer and employee contribute to EPF during a person’s employment period at that company. UAN – This unique number is assigned to each member of EPFO. It consists of 12 digits. An EPF certificate gives information about the employee’s employment, including the service period and the family members that will be able to benefit from the scheme in the event of death. Individuals can choose to continue their work after they retire from a company. You can either transfer the company to your next one or withdraw it. In case of withdrawal, the person must file EPF Form 10C.  Filling EPF Form 10C   Online and offline filings of Form 10C are possible. These…

Read more