5 Inflation-Safe Investment Opportunities For Individual FamiliesBy David Thompson, UniversityHerald Reporter
The recent news on the economic health around the world has been less than favorable. There are fears of rising costs, contracting economies that may risk jobs, and increasing stresses of making ends meet.
These discussions about inflation and a possible recession have been on top of mind for most people, leading to various market slowdowns, especially in finance.
For the typical family, making ends meet and having enough to pay the bills has become more challenging than ever, but there are some ways to cope with the financial stress that is occurring.
For the individual investor that has seen more volatility in their asset holdings than before, looking to diversify your investments to safer vehicles can also be a challenge.
With the proper knowledge and guidance, you could avoid jumping from one investment to another, exposing your assets to more risks than you thought.
However, there are some safe havens to park your money in even when the economy is dealing with inflation and possible recession.
The best places to invest money to combat inflation are precious metals like gold, TIPS, real estate, short-term bonds, and commodities.
The value of investing in precious metals is a long game for your investment. While inflation may hover around 8%, gold can't compete much in the short term. However, over time precious metals like gold increase in value at a rate much higher than the inflationary increases over the same amount of time.
The value of precious metals has historically appreciated due to their finite amount available, making gold and other precious metals a solid long-term investment option.
TIPS is short for Treasury Inflation-Protected Securities. These securities are government bonds that mirror the inflation rates so that when inflation numbers are high, so are the TIPS yields. These indexed bonds are tied to inflation and are good ways to diversify a fixed income or other held bonds.
The value of these securities will increase with inflation, making them a short-term option to park your money and have it appreciate at a rate equal to or equal to the rate of inflation in the economy. As the US Government insures them, TIPS are a good option for the average investor.
Real estate provides a good investment opportunity for investors during inflation because real estate historically outperforms the rate of inflation, allows borrowers greater access to financing to make money than any other investment, and provides a hedge against the increased cost of living like rent.
To get started in real estate as an investment opportunity, you need to understand the market and strategies that best fit your interests. For example, if you're looking to buy a property and sell it quickly, you will need to understand the Capital gains tax and how that can impact your profit margins.
Another thing is to decide what type of investment is best for your interests. For example, you may want to buy and rent out the property, or you plan to live in the home for a long time and then sell it once you retire.
There are REITs, which are ways to pool resources with other investors to purchase a large real estate holding, or a technique for investors called wholesaling real estate where you, as the investor, never hold the title but create a purchasing agreement with a seller and immediately sell that interest to a different buyer on a markup.
The best tip for wholesale real estate for beginners is to be aware that you are acting as a middle party between two entities but have the risk of fulfilling the terms of the deal without a secondary buyer.
Also, you need to deeply understand the local market, know the additional risks associated with wholesaling, and the local laws and regulations regarding wholesaling.
And most importantly, secure a buyer before you enter into any purchasing contract so you can minimize the exposure and risk you may have in your transactions.
Commodities are a risk/reward for hedging against inflation. Commodities are those raw materials or agricultural products that can be bought and sold, such as precious metals, oil, corn, and grain. The reason commodities hedge against inflation is that as prices for consumer items increase, so do the raw materials that make them.
The issue is that the value of commodities is volatile, meaning their prices can fluctuate wildly, which makes them a short-term risk for investing.
Short-term bonds are more resilient than long-term ones as they are easier to liquidate and less affected by interest rate increases.
Short-term bonds are more resilient than long-term bonds, which may suffer losses over the length of the terms and are more challenging to sell off for total value (maturity) than the shorter-term options.
Another reason to consider short-term bonds is that as they mature, investors can use the money from their yields and reinvest at a higher rate of return.