Investments That Protect You From Inflation

By | November 24, 2015

Smart Investments


                                                   “Wisdom comes to us when it can no longer do any good.”

                                                                                                                                                                         – Gabriel García Márquez

Once upon a time, there lived a man who was blessed with foresight – saved well for today, invested well for tomorrow and lived happily ever after. Fairy stories are a pleasure to read and for some, they are guilty pleasure. Alas, in the real world, you are merely blessed with hindsight. And if you do not plan your investments well in advance, you may be left with only guilt and zero pleasure in your life.

Change is the only constant when it comes to the value of a currency or financial transactions. In most cases, this depends on variables which are beyond your control. What is in your control, however, is your ability to make a proper assessment of your financial needs and plan accordingly.  For starters, you must know your risk tolerance. Secondly, understand your investment objective – Are you looking for mere stability, growth or a combination of both? Thirdly, are you aware of the overall economic stability in the country in terms of inflation? Rising inflation leads to economic uncertainty and decreases your purchasing power and value of income. There are various subsets to inflation such as retail inflation, food inflation, housing inflation, medical inflation, education inflation and lifestyle inflation. While you may be affected by all the aforementioned types, given that they are interconnected, you will feel the direct impact of only a few, depending on your age, income profile and lifestyle. You would, therefore, do well to draw up your own personal finance index consisting of both your daily and monthly/yearly expenses such as house rent, healthcare, food, education and entertainment, among others.

Here is the lowdown on a few feasible investment vehicles during times of high inflation.

1. Gold:

The yellow metal is often considered a good hedge against inflation in the long-term.  You will, however, have no income flow and should be content to depend on the appreciation of the precious metal. You can also invest in Gold ETFs which offer Systematic Investment Plans (SIP), thereby, giving you the advantage of compounding.

2. Mutual Funds:

Experts often cite investment in equities as one of the best ways to beat the inflation bug, given that it aims to offer inflation-adjusted returns. You would be better off opting for diversified equity funds rather than thematic funds.

3. Stocks:

Buying stocks which pay good dividends is a smart option since dividends provided by companies, in most cases, are in tandem with inflation (dividend yield should be higher than the inflation rate).

4. Real Estate:

Akin to Gold, if you own your home, it will not provide you with any current income but may appreciate over a certain period of time. You can, therefore, consider investing in property.

5. Inflation-indexed bonds:

Debt instruments offer higher returns than the rate of inflation, provided they are held till maturity. However, Inflation-indexed bonds have not had a great run so far owing to lack of proper marketing, coupled with high taxes.

The diversification factor

You can invest in a wide range of asset classes to beat inflation. For instance, if you have savings accounts, you can use them for your immediate expenses; while investing in commodities such as gold should be used from the perspective of long-term savings as they may fare well in terms of appreciation over a period of time.

A combination of the aforementioned investment vehicles may provide you with enough protection against inflation. Your life story may not have a fairy tale ending, but you will not live to regret it if you invest smartly.


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