Inflation can be a real pain when it comes to your finances. Every year, the cost of products and services seems to increase, and it becomes more and more challenging to maintain your standard of living. However, there is hope! This blog post will discuss strategies to beat inflation and protect your hard-earned money. We will also discuss how inflation can impact your investments, so read for tips on staying ahead of the curve!

What is Inflation?

Inflation is the rate at which the prices of goods and services increase over time. When inflation is high, each dollar you have buys less than it did in the past. This high inflation rate can erode your purchasing power and make it challenging to maintain your standard of living. In addition, inflation makes you lose money while saving it in the bank. In the United States, inflation has averaged about three percent per year over the past several decades. But interest rates have increased this time, and high inflation is slowly killing everyone!

What Causes Inflation?

There are a variety of factors that can contribute to inflation. For example, demand-pull inflation is the upward pressure on prices that follows a shortage in supply, a condition that economists describe as “too many dollars chasing too few goods.” Demand-pull inflation can happen during periods of economic growth, as people have more money to spend and businesses raise prices to keep up with demand. Another inflationary force is cost-push inflation, which happens when the price of inputs (e.g., labor, raw materials) increases. Again, this can lead to businesses passing on those higher costs to consumers through rising prices.

What are the Effects of Inflation?

Inflation can have several adverse effects on your finances. First, as prices increase, your purchasing power decreases. As a result, it takes more money to buy the same goods and services as before. Inflation can also affect your savings since the fixed interest rate on your account will not keep up with inflation. And finally, inflation can reduce your standard of living if your income fails to keep pace with the rising cost of living.

Inflation can be a real challenge regarding your finances, but there are ways to beat it! Investing in assets that increase in value and diversifying your portfolio can protect your hard-earned money and maintain your standard of living. Stay ahead of the inflationary curve by following these tips!

What Should You Do?

• Beat inflation with Bonds
  Bonds are debt securities, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them cash for a specific time. When you buy a bond, you lend money to the issuer, a government, municipality, or corporation. It offers a fixed interest rate for your long-term investments. Although the average annual Return is not as high, investing in bonds is an excellent place to “diversify” your assets.

   

• Diversify your portfolio
  Diversification can be summarized as, “Don’t put all your eggs in one basket.” If one investment loses money, the other will compensate for those losses. Diversification can only guarantee that your portfolio will not all suffer if the market drops. It is also better than letting the money in your savings account get eaten by inflation!

   

• Rebalance Your Portfolio Regularly
  It’s also important to rebalance your portfolio regularly. For example, you will need to sell some of your inflation-protected securities when they have appreciated and use the proceeds to invest in other inflation-related assets. By rebalancing your portfolio, you can keep your investment strategy on track and ensure that you are positioned to beat inflation.
  
  

• Investing in Private Equity
  Private equities are the only investment not dependent on the public market and not affected by inflation. It depends solely on the company’s performance and is not affected by swings in the market. Choose stable private equity that provides growth for your money; no matter how bad the inflation is, you know your money is safe, protected, and given back to you regularly through its earnings.
  
  

• Invest in Commodities
  Another way to beat inflation is by investing in commodities. Commodities are assets that people use in the production of goods and services. Therefore, when inflation increases, commodities’ prices also tend to rise. This means you can profit by investing in commodities when inflation is high.
  
  
• Investing in Gold
  Becky O’Connor from the investment platform Interactive Investor said that gold, UK equities and real estate properties were assets that beat inflation in the year to the end of March 2022.
  
  Although investing in gold can help beat inflation because its price increases during inflation, maybe only dump some of your cash in gold. Unless you sell your gold assets, gold does not give you much leverage over inflation in terms of cash flow or income. And investing in liquid assets is still considered by many as the best option.
  
  

• Invest in Treasury Inflation Protected Securities (TIPS)
  As the name implies, the government set up TIPS to protect you against inflation. Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term. When the TIPS matures, you get the increased amount if the principal is higher than the original amount.
  
  

• Invest in Real Estate
  As long as inflation continues to rise, your savings will afford you more spending power now than they will in the future. So even if inflation and home prices seem high now, as long as inflation continues to increase, you will be better off buying a house today than you will be tomorrow. Although unpredictable, it can be smart to use historical data to measure the flow and timing of inflation rates.
  
  

• Invest in Stocks to Beat Inflation
  Buying stocks in the stock market is the perfect investment strategy to fight inflation. From July 2012 to July 2022, the NASDAQ price index produced an average annualized earnings yield of nearly 111% and had dividends reinvested. Despite inflation, average annual earnings in the stock market are approximately 7.7%. So, even if the price today increased sharply, you are still likely to defeat the rising cost over the course of the year.
  
  
• Prepare an Emergency Fund
  Although planning for inflation requires investing in assets, remember to create an emergency fund. Open a savings account and put three to six months of expenses there that stay in cash and can only be used for emergencies. The emergency fund is in case some of your investments still need to be ripe for harvesting and an emergency strikes. And will ensure that you will not pre-terminate any of your investments and suffer penalties.
  
  

What Shouldn’t You Do?
 

• Don’t Keep All of Your Savings in Cash.
  One mistake that people make is keeping all of their savings in cash. While cash is a safe investment, it does not protect against inflation. Your savings will lose value over time if inflation rises and expenses increase.
  
  

• Don’t Put All of Your Eggs in One Basket.
  Another mistake is investing all of their money in one asset. This is often called putting all your eggs in one basket. While this may help you achieve short-term gains, it can be risky in the long run. If the price of your investment decreases, you could lose a significant amount of money.
  
  

• Remember to plan for inflation.
  Another thing that people need to remember is to plan for inflation. This can be a costly mistake if you don’t consider inflation, the future results in you having less spending power than you started with.

   

Benefits of Investing

The past performance of stocks has shown the value of assets has increased over time. For example, the annual average returns of the Dow Jones 500 averaged 7.7% over the past thirty years. A new report said this growth rate is well above the inflation rate of 2.1% in the same quarter. So if you want to beat inflation, get your money working for you through investments.

Best investments to cover the impact of inflation on your portfolio

A certificate of deposit was the mainstay of retirement investors. It ensured steady cash flows and protected the capital. On the other hand, more than fixed incomes alone will be needed to provide enough savings for retirement age. You can only live on a 12% return from your savings and get enough income to sustain it if inflation occurs in the future. Traditionally, stocks and property have acted well against inflation, particularly at low levels that have continued for decades. For example, in 1928, stock returns averaged over 10% annually.
 

How to Combat Inflation?

Investment in equities can beat inflation. Experts recommend investing money in diversified index funds with broad markets, including the S&P 500, rather than putting cash. Using this approach, your portfolio can be diversified while decreasing the risk of loss due to inflation. The sooner you invest and typically the longer you stay invested, the better. Regardless of where the economy is at the end of the day.

How to beat inflation, according to Warren Buffett

As prices sharply rise, it’s essential to consider some of Buffett’s best recommendations for fighting “big corporate tapeworms”.

• Invest in good businesses with low capital needs
  Warren Buffett has long advocated for owning businesses that earn high returns on the capital invested in the industry. During inflationary times, companies with low capital needs that can maintain their earnings should fare better than those required to invest more money at ever-higher prices to maintain their position.
  
  
• Look for companies that can raise prices during periods of higher inflation.
  If a business can increase its prices, it has a significant advantage during periods of high inflation because it can offset its increasing costs. Buffett once said that an unregulated toll bridge would be the ideal asset to own in an inflationary world because you would have already built the bridge and could raise prices to offset inflation. “You build the bridge in old dollars, and you don’t have to keep replacing it,” he said.
  
  
• Invest in yourself and be the best at what you do
  Consider bulking up your resume by learning a new skill through online resources or a local college. Pursuing advanced degrees can be expensive, but they can also help grow your knowledge base and make you an indispensable employee in the future. According to Warren Buffet, increasing your value to your employer and its customers will help you command your fair share of earnings over time.
  
  

• Limit your wants
  To help with buying unnecessary things, consider tracking your expenses through a budgeting app. This app will help you understand how you’re currently spending your money and may help identify problematic spending bursts before they become a habit.
  
  

• Think long-term
  Warren Buffett recommends putting stocks in your financial portfolio every five years to increase your chances of enjoying financial market returns. Stocks tend to be volatile over short time frames, resulting in a higher risk of loss. Stocks had many various turbulences in 2022. The FTSE100 dropped 3% from the end of June, up 5% since the beginning of March. But the NYSE stock index fell 20 percent last year. So whatever individual stocks or stock index funds you invest in the stock market, always think long-term!
  
  

 Following these tips could beat inflation and protect your hard-earned money. Stay ahead of the inflationary curve and maintain your purchasing power by investing in assets that increase value and diversify your portfolio. But if you are still deciding which private equity to invest in and how to find a good one, enroll in JT’s The Wealth Map’s investing 101 courses. When you enroll in The Wealth Map‘s classes, you get to be part of JT’s Deal Club, where you can get exclusive private equity deals. Sign up today!