How to Profit from Inflation: Tips You Can Use Right Now

The recent speculation of inflation has caused many people to question the economy. People are getting really nervous worrying about their investments and what they can do to turn a profit. But there are some things you can do to deal with the situation.

Understanding inflation

Inflation is the increase in the general level of prices for goods and services in an economy over a period of time, normally measured by a percentage rate. Inflation also refers to a decrease in the value of money over a period of time. Inflation is one of the most common and key economic problems that we face in this day and age

Inflation is one thing you can count on in life. As goods and services become more expensive over time, the price will increase. According to your region, country, and other factors, the rate of inflation varies greatly.  Inflation results in an increase in various prices. Due to this, people are unable to set up a budget because they don’t know the kind of budget they require. As prices increase, goods become less affordable, because individuals take home less money.

How to profit from inflation

There are still plenty of ways to take advantage of inflation, at least if you’re savvy.

Believe it or not accumulating debt via a loan or credit line is a great hedge against inflation. If you believe inflation is coming, you should borrow at near-0 % today, and watch as interest rates on loans rise.  Or if you are buying some expensive furniture or a new car take advantage of any zero percent financing.

If you are an investor you can borrow money at fixed rate and buy assets that will provide a decent return on investment.

Investing in commodities may be good for some people who are still learning about the economy but it may not be good for everyone with a time constraint.

Stocks are fairly likely to keep pace with inflation-but not all stocks are equal when it comes to doing so. Investors should look for consumer staples companies that can pass their rising costs on to customers, as they tend to lose value at inflationary times. For example, in inflationary times, dividend-paying stocks are typically hit very hard.  Based on a review of its many consumer products that people buy often throughout their lifetime, Proctor and Gamble stock may be a great inflation pick. 

Investors should be aware of the long-term and short-term risks of stocks.  It is all important to diversify your investment in stocks so as to minimize risk.  Diversification works whether we have rising inflation or stable inflation.

Technology and other growth stocks, which outperform the overall market, make one of the most solid hedges against inflation.

Consumer goods companies and others in the defensive sector do well.

Five assets that perform well during high inflation are Gold, stocks, commodities, foreign currency and real estate (including rental property).

Real Estate.  Inflation increase the resale value of property. Investment in real estate includes direct ownership and indirect investment in securities, like a REIT.Real estate is a hedge against inflation.

Home prices tend to rise as the cost of living increases.

REITs are a special class of companies that own or manage residential or commercial real estate.

Commodities.  Commodities includes items like oil, cotton, soybeans, and orange juice.

Commodities investors tend to go for gold during inflationary times because it is considered a haven in times of inflation.  Gold can be purchased either in bullion and coins or  indirectly by the purchase stock of company involved in the gold mining business. Another alternative is silver.  It is not only a great hedge against inflation, but has industrial applications as well.

Any investors can gain exposure with a publicly traded partnership that uses futures and swaps, or hedging.

TIPS. Consider purchasing TIPS which are treasury protected securities that rise in value as inflation rises.

What the Experts Have to Say:

Finally, in the vein that you should consider what the finance experts are saying on this important topic, here are some direct quotes from various leading publications.

How to Profit From Inflation: Investment Options

“Real Estate. Real estate is a popular choice not only because rising prices increase the resale value of the property over time, but because real estate can also be used to generate rental income. Just as the value of the property rises with inflation, the amount tenants pay in rent can increase over time.”

How to Profit From Inflation: Investment Options

“Investing in bonds may seem counterintuitive as inflation is deadly to any fixed-income instrument because it often causes interest rates to rise. However, to overcome this obstacle, investors can purchase inflation-indexed bonds. In the United States, Treasury Inflation-Protected Securities (TIPS) are a popular option. pegged to the Consumer Price Index.”

How to Profit from Inflation Surges | The Motley Fool

“Some research has shown that value stocks tend to do better than 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. Growth stocks, on the other hand, tend to be more sensitive to changes in interest rates — a common monetary policy response to inflation.”

Inflation Surge: Where To Put Your Money According to Experts

“Cash is often overlooked as an inflation hedge, says Arnott.“While cash isn’t a growth asset, it will usually keep up with inflation in nominal terms if inflation is accompanied by rising short-term interest rates,” she adds”

“Keeping your money in short-term bonds is a similar strategy as maintaining cash in a CD or savings account. Your money is safe and accessible.And if rising inflation leads to higher interest rates, short-term bonds are more resilient whereas long-term bonds will suffer losses.”

Profit from inflation: How to adjust your portfolio for rising prices

“Another newer, and increasingly popular, option is to invest in a fund specifically geared to benefit from inflation. Launched in January of this year, the Horizon Kinetics Inflation Beneficiaries ETF already boasts nearly $700 million in assets, making it one of the more popular choices among new ETFs this year, according to CFRA. The actively managed ETF seeks to invest in companies that directly or indirectly benefit from rising asset prices, and holds heavy allocations to financial services, basic materials, and energy firms”

How to Profit From Inflation – WSJ

“What to Sell• Bonds. The price of a bond moves in the opposite direction of its yield. When inflation kicks up, interest rates usually move higher, pressuring bond prices. Even buy-and-hold investors get hurt, because higher inflation erodes the real value of the interest payments you receive and the principal you get back when the bond matures.”

Where To Invest Your Money When Inflation Is High — and What Investments To Avoid

“Before looking at the best investments during inflation, it’s a good idea to know which ones to avoid. Experts interviewed by CNBC say you should shy away from long-term bonds and certificates of deposit, because buying them during periods of inflation means you might miss out on higher rates later. Short- to intermediate-term bonds are a better choice”