The last time inflation moved higher was back in April 2021, when it hit 4.2%. It’s now been 13-months since there has been double-digit inflation. Inflation continues to be well below the Fed’s target range of 2% to 3%.
But if history is any indication, things are about to change. The current level of low inflation could change quickly. A lot of investors know that a globally diversified portfolio is a smart way to grow their money.
But where are the best places to invest as we face this next period of inflation? We will dig into the asset classes to find where you must put your money.
Asset Classes on Inflation Investment Strategy
There are many asset classes that can help to inflation-proof your investment portfolio. One important asset class is real estate. Real estate has a long history of protecting against inflationary pressure and can be a very effective inflation hedge.
Real estate is a good investment, and If you are in real estate, you are considered wealthy in America.
Other asset classes that can be used to inflation-proof your investment portfolio include commodities, gold, and silver. These asset classes can all help to provide a buffer against inflation and help to keep your investment portfolio afloat during periods of high inflation.
Recognizing the Early Signs of Inflation
Over time, inflation erodes the purchasing power of money, which means that each unit of currency buys fewer goods and services. The earliest signs of inflation are often an increase in the prices of raw materials and commodities.
This is followed by an increase in the prices of finished goods, and, finally an increase in the prices of services.
Another early sign of inflation is an increasing demand for money. This increased demand can lead to higher interest rates and a decrease in the money supply. When this happens, the prices of goods and services increase, and the value of money decreases.
What to Do When Inflation Hits
Review your budget and make necessary adjustments. Inflation can cause prices to go up, which means your budget may need to be adjusted in order to account for these changes.
Invest in commodities. When inflation hits, commodities tend to go up in value. This can be a good way to protect your finances and even make some money.
Keep an emergency fund. Inflation can be unpredictable, so it’s always a good idea to have an emergency fund to fall back on.
Portfolio Diversification
The best way to inflation-proof your portfolio is by diversifying your investments among all asset classes. That way, if one asset class is doing poorly, chances are, one of the others is doing well. For example, if stocks are losing value because of inflation, bonds and cash may be gaining in value.
Remember, the key to successful investing is to create a diversified portfolio that meets your risk tolerance and return objectives. By investing in a mix of asset classes, you can help protect your portfolio from the effects of inflation.
If you’re interested in learning more about creating an inflation-proof investment portfolio that is designed to help you, please read more of our blogs.
