Inflation is a normal aspect of a growing economy. However, when it gets too high for comfort, inflation may even clash with the everyday budgeting decisions of a person. Inflation in the U.S. reached 9.1% in 2022, the most since 1981. Even though it has toned down quite a bit over time, inflation remains higher than normal while stepping into 2024. As Kavan Choksi Finance Expert points out, inflation do not only make purchases more expensive, it can also complicate the investment decision of a person. Even though investing during inflation does come with varied risk, embracing certain assets can help people to maintain an even footing.

Kavan Choksi Finance Expert lists a few assets one can invest in during inflation

Inflation implies to the general rise in the prices of goods and services over time. As prices rise, it essentially lowers the purchasing power of money, and hence each dollar buys fewer goods and services. Basically, during inflation, the same goods and services cost more now than they did before. As people experience this climate of financial uncertainty, they may feel that it is the safest strategy to save money during inflation rather than investing it. However, if one does invest smartly, it is possible to grow money amidst such financial uncertainties as well.

Inflation does erode the purchasing power of a person. Investing funds can help prevent this by delivering returns that match or exceed the average rate of inflation. The general goal of making investments during inflation is to outpace the average rate of inflation over the long term.  Certain types of investments can help people to reach this goal more effectively than others. These investments include:

  • Stocks: Historically, stocks have managed to outpace inflation. Annualized returns have averaged about 10% historically. For example, if inflation runs above average, at about 4% per year for the next two decades, while the stock portfolio performs below average, at 8% per year, during that time. Even in this situation, one would still be doubling the rate of inflation, which means that they shall grow their wealth rather than shrinking it.
  • Inflation-protected bonds: Treasury inflation-protected securities or TIPs generally perform well despite inflation. Such unique bond types are basically government securities that have been designed to be indexed to inflation, as measured by the Consumer Price Index (CPI).
  • Real estate: REITs or Real Estate Investment Trusts) are companies that own and operate income-producing real estate.  As property values and rental income generally rise along with inflation, investing in them would be a good idea.
  • Gold: Investors have historically used gold as a hedge in times of uncertainty and rising prices. However, prior to investing in gold, one must remember that it is a store of value over time, as a result, prices of gold can fluctuate in the short term.

Kavan Choksi Finance Expert stresses upon the fact that investing during periods of inflation does come with a certain degree of risk, but with the right approach, one can make sure that their finances outpace inflation over time.