What causes inflation? We need to answer this question before we discuss how to protect yourself against it. The start of the war against Ukraine is one reason for price increases that are sometimes quite dramatic. Since then, the inflation rate has gained momentum around the world. Delivery bottlenecks are also a result of disruptions in supply chains and significant price rises at the upstream economic level. As a result, not only did energy products become more expensive but so were other goods like food.
Now, let’s learn a few things we can do in order to protect ourselves against inflation.
Protect yourself from inflation with these 4 methods
1. Profitably invest money, diversify and protect capital
Real protection from inflation can only be achieved by investing your money profitably. This is the best method to combat currency devaluation. This is a great way to protect yourself from inflation and increase your capital.
Certain asset classes may fluctuate in value, but the long-term trend is up. So, even if inflation is moderate, it does help.
Attention: Higher returns can also be associated with greater risk. Higher yields can beat inflation rates, but higher interest investment forms will bring you more risks.
Diversifying your investments is crucial if you want your money to be protected against inflation. It is a way to reduce cluster risk by investing in multiple investments and different investment types. In addition, diversification can be a risk management strategy that allows you to invest in many assets. This will reduce your potential losses in the face of increased market volatility.
Diversification can be achieved with different capital types, including equity and debt: for example, a form of debt capital with the subordinated loan, along with shares or other participations.
2. Real estate as protection against inflation
If you, as the buyer, pass on the higher costs to the tenants, a property can be used as an inflation hedge. The running costs of maintaining the property will also rise with inflation. If you don’t have a fixed rate agreement, financing costs may rise. As a landlord, if rents are not increasing in proportion to costs, it can result in a loss. Tenants who are able to impose strong and rapid rent increases on their properties are often difficult to enforce. This is called hyperinflation.
The property provides protection in the event of high inflation. Inflation rises, and real estate prices also rise. This means that you might be able to sell your property at a higher price than what you originally paid. Of course, this is possible only if you have a buyer willing to pay a higher price. Beware of real estate bubbles.
You can also invest in real property funds if you don’t have the capital to buy your own property. You can participate in the real estate industry with very little capital.
3. Protect against inflation with stocks
Stocks are tangible assets, just like real estate and precious metals. Stocks are a representation of companies that have real assets such as factories, personnel, and machines.
These stocks are very useful as a protection against inflation since prices tend to rise when there is more money. Of course, it depends on the stocks you have. As a shareholder, you will benefit from inflation if companies are able to pass on increases in costs.
However, it is essential that customers’ real wages keep up with inflation. The prices can’t be passed to customers whose purchasing power falls. Customers cannot afford to buy the products and services of the company.
It is important to choose the right amount. Research shows that stocks do best when inflation rates are below five percent. However, higher inflation rates can cause serious problems. This can have serious consequences for the economy as a whole and other asset class.
Equities can be used to protect against inflation with a moderate to a high inflation rate. However, there are also many unpredicted risk factors that could come your way. It all depends on which stocks you have. A company can go bankrupt even if there isn’t strong inflation in an economy.
4. Inflation protection with infrastructure funds
For many years, infrastructure expansion has been a major issue in Germany and around the globe. Recent investments have been made in communications networks and renewable energy, as well as bridges, highways, and airports. Funds that combine multiple infrastructure projects are being offered in addition to individual investments. An investment in infrastructure funds is a good idea, as most of them offer above-average returns. This is a huge need that will only continue to grow.
Infrastructure funds provide a high degree of predictability and stability. Many of the companies that receive funds are “quasi monopolists.” They are protected by long-term contracts and less dependent on the economy. Inflation protection can be supplemented with infrastructure funds.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
