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The Big Injection

It is inevitable that cost of living will increase with time and the Consumer Price Index has shown that over the years. High rates of inflation though can catch the average person off guard and heavily reduce the savings they have been collecting for quite some time. With the current pandemic situation many consumers have become much more fiscally conservative with their budget and are waiting to increase their disposable spending again. Billions of dollars are being injected into the economy right now through stimulus programs, a majority of which are being saved rather then spent. It is possible that demand could escalate quickly, and this could become a prevalent issue again, so it is important to make sure you have methods to prevent a substantial decrease in value. With the possibility of a spike in the inflation rates after COVID-19 here are a few suggestions on actions that can be taken.

Precious metals such as Gold have always been a popular choice for people when looking to avoid inflation but while there are the tangible assets and everyday commodities that hold their value you can also take steps with your portfolio and investments to provide stability. The two main asset classes for building a portfolio are debt (including bonds) and equity (stocks and ownership). Ensuring a diversity of assets in your portfolio is a good start as that can hedge a lot of risk so a mixture of equity and bonds provide is the best option. One type of bond that you should look to hold is a Treasury Inflation Protected Security (TIPS). The TIPS bonds are government backed meaning there is zero risk of default and ultimate protection from inflation. Stocks produce dividends as well as opportunity for high growth. Mutual funds are a convenient option managed by professionals that include both debt and equity and reduce risk by a large margin.

Investing in real estate is a great way to combat rising inflation as well. There are a number of benefits to owning a rental property such as passive income and tax advantages. Housing is a necessity for all so there will always be a demand for a rental property in the right area and rent can be increased to match inflation rates. An examination of your own personal spending and saving habits will also be key to protecting your financial situation. Fixing any future expenses you can such as loans or mortgages is also a great step in terms of budgeting and forecasting future costs. Maintaining an income during these difficult times is another important factor that will weigh into your financial decision making.

There are many other options that can be explored but these are the foundation of hedging against inflation risk. Taking these steps can help provide a lot of confidence in your financial situation and ease any worries over future uncertainties.

Conor Coleman



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