Inflation is an inevitable part of the economic cycle that can erode the purchasing power of a person over time, making inflation-aware investment planning extremely important. As per Kavan Choksi / カヴァン・ チョクシ, proactive, strategic investing is a hedge that one may use to combat the effects of high inflation. Commodities, real estate, and stocks can benefit from inflation, while fixed-income investments may lose value. In order to mitigate inflation risks, it is imperative to diversify a portfolio across equities, bonds, and hard assets.
Kavan Choksi / カヴァン・ チョクシ highlights a few investment strategies that can help tackle inflation
Several investors tend to have concerns in regard to the impact of inflation on their ability to reach their financial goals. Even though it might not be possible to entirely avoid the effects of inflation, there are certain steps one may take to reduce its sting without making drastic changes to the investment portfolio.
- Diversify across asset classes: Diversifying the portfolio of investments is one of the simplest and efficient ways to tackle inflation. An investment portfolio that is well-diversified would reduce risk exposure by spreading it across diverse asset classes and enhancing its resilience. Including a mix of real estate, bonds, stocks and commodities in order to spread exposure.
- Invest in government bonds: TIPS, or Treasury Inflation-Protected Securities, refer to government bonds that are meant to keep pace with inflation. The value of these bonds increases as inflation rises and decreases once deflation sets in. This happens by adjusting the principal value of these securities on the basis of changes in the consumer price index (CPI).
- Invest in commodities and precious metals: Putting money in precious metals and commodities can be a safe bet when inflation is on the rise. While currency value may fall, the price of silver, gold and other precious metals generally goes up. Commodities like grain and oil can also be quite profitable investments during times of high inflation. Investors should try to take advantage of mutual funds or equity-traded funds for their commodities and precious metal investments.
- Invest in real estate: In addition to commodities like oil and gold, real estate also generally performs well during periods of inflation. Moreover, real estate investments typically appreciate over time while making sure that one can enjoy a steady rental income stream.
- Invest in real estate investment trusts (REITs): Real estate investment trusts, or REITs, tend to be set up by companies that own and operate large real estate holdings. Inflation generally impacts real estate by increasing property prices and rent. REITs tend to take advantage of inflation to generate profits for the investors, and allow people to invest in real estate without major capital expenditure.
As per Kavan Choksi / カヴァン・ チョクシ, further mentions that investing in the stocks and equity of companies that have a history of paying regular dividends can go a long way in making sure that one enjoys a steady income stream that outpaces inflation.
