How to Invest During High Inflation

How to Invest During High Inflation

Inflation Effects

There are many different ways to invest to during high inflationary periods. Depending on whether you are a retiree, new investor or are just trying to limit the effects of inflation on your portfolio, there are a couple of things you can do.

From currency diversification to investing in real estate or commodities to holding precious metals, one has many different avenues to hedge against inflation. For this piece, we will look at the options available to ordinary investors looking to ride out the evil effects of rising inflation.

Treasury Inflation Protected securities
One thing that an investor can do to limit the harmful effects of inflation is to own Treasury Inflation Protected Securities, or TIPS. If you live in the United States and have mostly US-based assets, there are a couple of different ETFs you can buy. TIPS are a treasury security that are indexed against inflation, and are usually considered relatively safe investments since they are backed by the full faith of the US government. TIPS will be indexed to the Commodity Price Index (CPI) and their par value will increase or decrease as the CPI does. TIPS come in a variety of maturities, from 5 to 20 years. There are also TIPS for most industrialized countries, and can be purchased directly through the issuing government. Usually these will be tax free from state and local authorities.

Gold & Silver
One thing that has come back into favor with inflation hawks is to own precious metals like gold or silver. Gold has historically had a 10:1 relationship with bond prices, which makes a great hedge in times of uncertainty. Also, the price of gold has been denominated in US dollars. So, any sort of inflationary pressures that have the price of the dollar going up will also have the prices of gold going up. Also, times of high inflation are usually accompanied by times of panic and uncertainty. Gold has a tendency to gain favor in these times as a flight to quality or safe haven asset.

Currencies
Another, more direct way to combat inflation would be to dump all high inflationary currencies for those with lower inflationary concerns. If you know that your currency is about to – or is going through – a high inflationary period, one can simply sell their high inflation currency for something with a lower inflationary outlook. Not only will you save money by not letting your portfolio crumple, but you should see some appreciation in the other currency as well. Many investors have been getting out of dollars lately and buying the Swiss Franc or Australian Dollar.

Commodities & Real Estate
Another thing people do to fight inflation is to buy goods that should appreciate under inflationary times. Assets like real estate and commodities have shown tendencies to appreciate when the value of the currency they are denominated starts to fall. The goods have to appreciate in order to keep the value they would have lost since the currency went down. The best example of this would be all the commodities (based in dollars) that have appreciated over the past two years as the US dollar has depreciated.

These are just some of the investments available to investors during time of high inflation. Again, depending on where you are in the investing cycle will determine what hedging method is best for you.

Measures to Control Inflation

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Controlling inflation, whether it is too high or too low, can be detrimental to the health of an economy. Although most of the measurements of inflation fall to a sovereign country’s labor department, the role of that country’s Federal Reserve (or national bank) is to control inflation through the use of monetary supply, exchange rates and fiscal policy. Monetary Policy The primary tool for any national bank or entity trying to…

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Inflation Effects on the Economy

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Inflation can have a myriad of effects – from some good to many bad. Inflation can cause hoarding, price distortion, increased risk, lowering of incomes, serious problems for those who are lenders or live on fixed income, increased consumption, lowered national savings, diminishing profits, higher taxes, quickening of business cycles, rising prices of imports and as well as devaluing of a currency. Inflation can be a serious problem to not…

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How is Inflation Measured

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In order to enact the best monetary and fiscal policy for an economy, one must have accurate measures of inflation. There are varying ways to measure inflation and each has its own value when determining the given inflation of a time or place. In the U.S., the most popular measurement of inflation is the Consumer Price Index and its cousin the Producer Price Index. Other measures of inflation include the…

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Inflation and Its Effects

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Inflation is the measure of the general level of prices for goods and services in an economy over a given period of time. Inflation’s impact on the economy is vast, varied and can be either positive or negative. Inflation is usually caused by the increase in money supply as well as a change in economic conditions. Most economic analysts agree that low to steady inflation can be beneficial, while hyperinflation…

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