Inflation can be a significant hindrance when you’re trying to build your net worth and grow your wealth. In fact, inflation can have a devastating effect on retirement plans as it erodes the spending power of every dollar saved.
Fortunately, there are steps investors can take to inflation-proof their investments and savings.
Diversifying your investments such as stocks and bonds and investing in alternative options like real estate, inflation-protected securities such as Treasury Inflation-Protected Securities (TIPS), peer-to-peer lending, and cryptocurrency.
Inflation is a significant factor when it comes to growing wealth. As inflation rises, so does the price of goods and services, which can significantly impact investments.
To protect your wealth from the effects of inflation, it’s essential to consider long-term strategies with a track record of appreciating at rates higher than the rise of inflation, which currently stands at a little over 7%.
Alternative Investment Opportunities
Of course, you could always carry a portfolio of traditional stocks and bonds, but inflation may impact those.
So instead, consider transferring all your investments into alternative options that perform better against inflation, or at least diversify to include some alternative holdings.
TIPS are federally insured against inflation and increase returns as inflation increases. That’s because these investments are tied to the rate of inflation, so as costs increase, so does the APY, or annual percentage yield.
Peer-to-peer lending is another way to build a net worth that is inflation-proof. This type of investment involves lending money to individuals or businesses through online platforms. The interest rates on these loans are typically higher than traditional bank loans, which can help investors earn more in times of high inflation.
Additionally, peer-to-peer lending investments tend to be less volatile than other investments and can provide a steady stream of income.
Cryptocurrencies are relatively new as an asset class but have steadily grown in popularity in recent years.
Cryptocurrencies use cryptography to secure transactions and are digital currencies, meaning their values are not tied to a central bank. Instead, crypto gains value based on the supply and demand of a particular currency.
Many cryptocurrencies, such as Bitcoin, have seen volatility over the years, but in general, their value has increased significantly since it began.
Real estate is a great way to hedge against inflation, as property values historically outperform the inflation rate.
As an investment, landlords can raise rental rates that keep up with rising living costs while having their expenditures remain fixed.
For those who don’t have enough cash to buy an investment property immediately, other options such as real estate investment trusts (REITs) or mutual funds invest in REITs.
These vehicles provide dividends on ownership percentage and are a great entry point to real estate investing.
Other intelligent real estate investment opportunities include;
- Fix and Flip: This model requires you to purchase a property below market, infuse it with renovations to increase resale value, and know the market well enough to profit from the investment plus renovation costs.
- Rentals: Long-term rentals provide a great way to hedge against inflation and offer lifetime earnings.
- Wholesaling: Instead of flipping properties, wholesaling is the process of flipping purchase contracts for a profit. Investors find a motivated seller, get them to agree to wholesaling terms, and then broker a deal by finding a secondary buyer.
- Luxury Markets: Luxury markets are also considered immune to inflation as higher-wage earners have more access to lending options and more liquid cash to make direct purchases.
To find opportunities in the luxury markets, you can reach out to local brokers and agents or conduct your research to find luxury Bahamas real estate good investment opportunities, Maui luxury condos, and real estate land development opportunities in Salt Lake City, for example.
Growing your portfolio to expand your wealth and net worth can be challenging in regular economic cycles but even more so during challenging ones like high inflation.
To combat the rate of inflation and earn more than you could otherwise, it may take some alternative investing in getting a higher rate than the inflation percentage.