How to beat inflation

 

How to Beat Inflation in 2022?

It’s everywhere in the news on TV and online, inflation is back!

But what is inflation exactly?

In simple terms, inflation is the general increase of the price of goods and services in an economy, resulting in a deterioration of the purchasing power of your money.

And because the deterioration is slow and occurs over time, inflation is often referred to as ‘’the silent wealth killer”.

That’s right. If you leave your money on a savings account, your wealth will erode over time.

But the great news is that there are ways to hedge against inflation and grow your wealth regardless. 

In this post, we’ve listed four ways to beat inflation in 2022:

 

Stocks

The inflation rate is currently around 7% in the US and economists are predicting rising levels this year. A 7% inflation rate means that the price of goods and services is increasing, on average, at a rate of 7% a year. Now, the best savings account interest rate is 0.6% as of January 2022. 

So, if you choose to invest your money in a savings account, the value of the money in the bank account will depreciate. Why? Because the money you’ve placed in your savings account won’t grow as quickly as the inflation rate (the price of goods and services) resulting in lower purchasing power. 

The good news is that investing in the stock market will allow you to beat inflation and ensure that the value of your investment exceeds the inflation rate.

How?

Well, the average return on investment on the S&P 500 was 13.6% between 2010 and 2020, which significantly exceeded the inflation rate. 

Therefore, as an investor, buying shares will allow you to:

- Retain your purchasing power 

- Grow your capital since your returns will be higher than inflation!

Cryptocurrencies

While stocks are an excellent way to beat inflation, they’re not the only asset that can provide security against inflation. As part of a diversified portfolio, many investors are now turning to cryptocurrencies too. 

Why? 

Because with inflation spiking to the highest levels in 40 years, you need to hyper-grow your portfolio. And very few assets are better at significantly increasing your returns than cryptocurrencies. For instance, in 2021, Bitcoin returns have increased by a whopping 59.8% and Ethereum by 399.2%! 

So, with such incredible returns investing in cryptocurrencies can help you supercharge your portfolio and increase your wealth over time.

However, keep in mind that cryptocurrencies are highly speculative and volatile. Therefore, the general consensus is to only allocate between 2% and 5% of your funds to this type of asset.

Real Estate 

Historically housing trends and inflation have been highly correlated. That’s why real estate investments are one of the most popular ways for investors to protect their money against inflation and grow their wealth.

But how can an investment property help you beat inflation? 

We’ve listed below some of the main ways:

- As the price of goods and services increases, so does the rent you can charge your tenants and the value of the house or unit you purchased. 

- Many leases feature rent bumps directly linked to the annual inflation rate.

- Higher inflation leads to higher construction and material costs raising the price of new development projects, and limiting supply in the process. And this, in turn, provides room for your rent to grow and your property to appreciate in value.  

Real estate is often considered a safer alternative to stocks and cryptocurrencies. 

 Investing In a Farmland

With inflation running hot, farmland has drawn investors’ interest over the last few months. 

Let’s see how investing in farmland can help you beat inflation.

Historically, an increase in investment in farmland tends to be highly correlated with inflation. That’s because, as the price of commodities (including food produce) goes up, the space can provide tremendous returns for savvy investors.

Besides, agricultural land tends to offer stable returns over time and the value of US farmland has been steadily increasing over the last fifty years, providing a safe haven for investors looking to protect their money against inflation. 

And this trend seems to have accelerated since 2014. In fact, the value of farmland in the US has increased at a rate of 7% a year just between 2020 and 2021! 

While these four options are some of the best ways to protect your assets and grow your wealth in an inflationary environment, this list isn’t exhaustive. For example, gold, and TIPs ( Treasury Inflation-Protected Securities) can also be a good way to offset the effects of rising prices. 

Have you been investing your money over the last few months to protect and grow your wealth? If so, we’d love to know where you invested so, don’t hesitate to share your experience in the comment section below!