Where To Invest When High Inflation

Where To Invest When High Inflation – If you spend on everyday items, I’m sure you’ve noticed that things are getting (a lot) more expensive.

For example, in January, the average chicken price increased by 13.6% from RM8.40/kg to RM9.54/kg compared to last year. In addition, the price of eggs and milk has recently increased by 13.5% and 3%.

Where To Invest When High Inflation

We don’t need to be economists to know that things are more expensive. (Image Source: The Edge)

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Certainly inflation erodes the value of cash. So, the big question now is: How should we invest in high inflation?

To begin, let’s look at the inflation-adjusted (‘real’) annual returns of 6 different asset classes from 1972 to 2021.

To make sure you can see the performance of these assets, I increased the total return by 20% (-20%).

The amazing thing about this table is the gold. Despite gold’s high volatility (big ups and downs), it has produced suboptimal returns. Even if we use the average real return (rather than the median), gold is still undervalued compared to stocks and REITs. In other words, it contradicts the assumption that gold is the best hedge against inflation.

How To Invest Through High Inflation

To dig deeper, I calculated the inflation-adjusted returns of the 6 asset classes from 1972 to 2021.

As you can see, the assets that outperform inflation (especially when it’s high) are also the most volatile (S&P500, Global stocks, REITs, Gold).

That said, flexibility is part of the story here. The reason: Gold still outperformed if we looked at returns for only the years when inflation was above 4% (1973 to 1982, 1985, 1988 to 1991, 2008, 2021).

From what we have seen so far, we can conclude that stocks (S&P500, Global stocks) and real estate (REITs, houses) maintain their value even during periods of high inflation.

Should You Invest In Real Estate During Inflation?

In comparison, assets that provide investors with fixed income (such as bonds) tend to underperform during periods of high inflation.

Frankly, we have no clue due to lack of information. Cryptocurrencies have only existed in low inflation (post-2009) so it is hard to say what they will do now that inflation is on the rise.

Since there is no historical reference in crypto, it is a good benchmark to ask a crypto investor: does crypto provide value to its owners? If you think it’s worth it (it’s still low) and the value continues to rise, it may have a chance of outpacing inflation.

Whether it’s stocks, real estate, gold or crypto, there’s one thing that can protect your wealth from inflation – the things people value.

Where To Invest If You Expect High Inflation

If you have things that people want, no matter what happens in the world, the assets you hold can hold their value (and even better, grow in value).

So, the question you need to focus on and ask yourself is do you own assets that provide value to people?

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This post is for sharing purposes only and should not be taken as an offer to buy/sell. Past returns are not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.

This post may include promo codes at no extra cost if you sign up through my referral link (and support the blog).

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Hi there! I’m Yi Xuan. I’m a writer, personal finance and REIT enthusiast, and a young entrepreneur with the goal of becoming a full-time crowdfunding entrepreneur. Every week I write about my personal lessons and discoveries about life, money and the market.

How To Invest In Real Estate During A Mega Inflation Period

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As soon as you do this, you’ll become a member of Weekly Money Nugget and hear from me once a week via email.

If you want to contact me, you can always reply to these emails and we can chat. Inflation affects every part of the economy, including consumer spending, business investment and labor costs, as well as government programs and tax policies. , and interest rates.

Investors should have a strong understanding of inflation as it can reduce the value of investment returns. With inflation at its highest level in a decade after several years of relative stability, investors need to understand the causes of inflation, its impact on their portfolios, and consider strategies to respond to changes in the investment environment.

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Inflation refers to the increase in the prices of everyday products and services such as food, clothing, housing, entertainment, transportation, consumer goods, etc. In other words, the inflation rate is the average change in prices over time. A package of goods and services.

Example: Last week you bought 5 kg of rice for 100 Birr. This means Rs. 20 was paid for 1 kg of rice. This week, when you bought rice and paid 100 rupees, you went to the same shopkeeper and he only gave you four kilos of rice. He said that now the price of rice has reached 25 rupees per kilo.

This clear example shows how the value of money has fallen. Earlier, you could get 5 kg of rice for Rs. 100, but now you can get only 4 kg of rice. Therefore, people can buy less with their money. This is called inflation. And let’s find out the inflation rate (in percent). If the price of rice rises from Rs 20 per kg to Rs 25, it means that the price has increased by Rs 5 or 25 per cent. So the inflation rate is 25%, which is very high.

If inflation is not controlled, it can destroy the entire economy. There are many examples of how high inflation has destroyed economies in Africa and South America. But who monitors inflation in India? And what are the inflation indicators in India? Let’s look at each one.

How To Invest Your Money When Inflation Is High

There are three ways to measure inflation: at the producer, wholesaler, and retail (consumer) level. The price increases at each stage until the good finally reaches the consumer.

Currently, there is no index that measures inflation at the producer level in India. Although this method of calculating inflation is not yet implemented in India, the Producer Price Index (PPI) has been proposed.

In India, this method of calculating inflation is very common. The wholesale price index is an index used to calculate wholesale inflation. This rate of inflation is often referred to as headline inflation. Ministry of Commerce and Industry publishes WPI.

Before 2014, RBI used WPI for most policy decisions. But inflation calculations based on WPI were not foolproof. WPI shows the price of a package of goods made of 697 goods. WPI excludes services and does not reflect barriers between wholesaler and retailer or manufacturer and wholesaler (consumer). Hence, from 2014, RBI switched to using CPI as part of policy decisions.

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