How Can Inflation Make You More Creative With Your Investments?
Have you noticed that product prices have skyrocketed in 2021 and 2022? It means you couldn’t afford to buy the same amount (or the same quality) of items and services from your monthly income. In a nutshell, this is the essence of inflation. It affects us where it hurts the most, our pockets.
Should you keep your money safe or invest it smartly during inflation?
It’s no rocket science to see why high prices curb everyone’s enthusiasm to buy and invest. Should, however, inflation inspire us to keep our life savings and financial resources secure and tucked away under a cozy blanket? Or should we consider rising prices a challenge and still find creative ways to make money despite inflation?
We vote for the second option because cash and unproductive assets can and will depreciate over time. You can contact expert local real estate agents to confirm that investing in a hard asset and renting it out as Airbnb, residential, or commercial rental property can be a financial jackpot.
Today, we will look at some inflation-proof investments that have stood the test of time. Moreover, they can pack a punch and go twelve rounds, even against the heavyweight champion. So, most of these are smart investments applicable during a recession too!
Discover the economy in the States pulled down by inflation!
The inflation rate indicates rising prices in a country’s economy. Secondly, the annual inflation rate shows the percentage of change in service, commodity, and product prices from one year to the next.
The Bureau of Labor Statistics publishes the official consumer price index at the end of each year. Their annual reports revealed that the inflation rate in 2021 was seven percent, and it was 6.5 percent in 2022. In other words, your $10,000 in 2021 wasn’t worth $10,000, only $9,300! Now imagine the highest inflation rate of 18 percent in 1946 and how hard it crippled the post-war US economy!
However, the good news is that they have calculated a significant drop in inflation for 2023 (2.7 percent) and 2024 (2.3 percent.)
Cause and effect of inflation
Because high inflation induces uncertainty, resulting in a substantial drop in companies’ and citizens’ willingness to invest. To make things worse, inflation affects and reduces the gross domestic product and boosts energy prices. Inflationary trends must be addressed in time. Otherwise, they can spiral out of control and lead to the emergence of a recession, a genuinely horrific economic collapse.
The FED targets maintaining the inflation rate at a maximum of two percent. Their contractionary monetary policy (for instance, raising interest rates) has brought results. But we can never put our fears of inflation to rest!
Why can’t you ignore investing in real estate during inflation?
Since the pandemic, real estate has increased by twenty to thirty percent in most markets. Home prices are growing, and the real estate market suffers from a housing shortage due to the increased cost of building materials. Because keeping cash during inflation is a bad idea, investing it in real estate works like a charm. Let's discover why!
Properties are hard assets generating a stable monthly cash flow.
Purchasing land, a house, or a condo means investing in a tangible or hard asset that doesn’t depreciate over time to such an extent as money. Moreover, it has the potential to generate income while hedging against inflation. Inflation raises rents so investors, landlords, and second property owners won’t be affected by growing commodity prices because their monthly cash flow is assured. Plus, the revenue covers your mortgage!
Investment properties bring you tax reductions and reduce the cost of loans.
We must also mention the valuable tax benefits for rental property owners! As a landlord, you can deduce mortgage interest expenses from your tax. In addition, you can benefit from a loan for home repairs and write off the interest! Thirdly, you can deduce travel and home office expenses!
Another huge perk of investing in real estate or keeping your money in properties is that inflation practically lessens the cost of loans. Paying your loan back on the house will be much easier because the money you borrowed from the bank has become more budget-friendly, aka cheaper.
What’s the ideal property to invest in during inflation?
Investment properties differ, and you must be cautious when buying one. For instance, watch out for real estate market trends in a particular city! And don’t start investing in luxury real estate that is bound to depreciate, especially during economic decline! Instead, try to locate single-family units for sale that are priced below the median home selling price.
These types of properties hold their value more steadily as the market increases, and there will always be a great demand for them.
Don’t run out of the stock market when the prices are down!
During inflation, government bonds become more appealing than the stock market because they offer more stability yet lower returns. However, if the stock market is down, you can buy stocks at a more advantageous price and become a long-term net buyer (purchasing more than you sell.) In fact, no one will stop on Black Friday and return from the store empty-handed because product prices are too low.
At the same time, be aware that market corrections (and stock price fluctuations) are a regular and integral part of stock investments.
Improve your earning power!
Investing in yourself and your power to earn your livelihood must always take center stage! Nothing can beat education and skill acquisition; they will prove to be a 100 percent fool-proof investment. However, you must inform yourself first which are jobs and professions in high demand and which vocations are destined for termination due to technological advancements and artificial intelligence.
Professions with and without a bright future
Right off the bat, we recommend considering recession-proof jobs in the following domains: education, the tech industry, healthcare, the federal government, agriculture, manufacturing, repair people, and public contractors. You will likely find a well-paying job pursuing one of these careers even if a recession sets in. On the other hand, finance and banking, media and marketing (advertising, content creation, journalism), and legal industry jobs, for instance, paralegals and legal assistants, are only a few of the jobs heavily exposed to replacement in the near future.
Final thoughts
Inflation and economic hardships make us more creative in our investment endeavors because they pose a challenge, and we must find a solution fast. We must leave our comfort zones and explore new areas to thrive and invest in. For starters, we must diversify our investment portfolio! Firstly, we suggest preparing a market analysis containing those jobs in increased demand. Yet, there’s a shortage of them in the job market. Becoming a net buyer and investing in tech-related high-yield stocks is also profitable during inflation.
Real estate-wise, we recommend tracking down vacant or run-down properties because they’re likely more affordable. Locating homeowners behind their mortgage payments and cutting deals with them can be extraordinary. In such cases, the home price won’t be too hefty, and you can generate a profit by renting them out or selling them at a higher profit! You might also wish to monitor the MLS regularly to get updates on homes on sale in your area!