Four ways to beat inflation

Inflation is a term used in economics to signify the general rise in prices. When prices rise for goods and services, the overall purchasing power of money decreases, which means that a currency’s value decreases.

Why do we as investors continuously monitor the inflation rate?

Some stocks perform differently from others during peaks in inflation. Investors can monitor a stock’s likely performance by looking at the trend of the stock’s historical data. Investors should make sure that as part of their portfolio, some assets are more resilient to the fluctuation of inflation.

The risk is that the higher the inflation rate, the lower the real return on your assets. To determine the real rate of return for companies, you need to take the annual return earned and subtract the inflation rate.

Are there any investments that can be considered during a phase of high inflation?

1. Companies with low debt

Gielie Fourie, research analyst at Overberg Asset Management says to avoid companies with too much debt on their balance sheets. This would make sense especially when you consider that with inflation, interest rates usually rise — this is how the Federal Reserve counters the inflation rate. This means that there will be higher interest costs for companies to pay if they have a lot of debt on their balance sheet.

2. Companies that can transfer the inflation burden to consumers

During 2022’s hiked inflation, many companies have reported lower profits, due to rising costs within their firms. However, some businesses can raise their prices in relation to their competitor, and still make sales. These companies are either monopolies in their industry or part of a handful of competitors. Companies with a clear competitive advantage could fall into this category as well. By investing in companies that can keep their profit margins despite rising costs, your portfolio could be more resilient during times of inflation. Defensive sectors such as utilities, consumer staples, healthcare and telecommunication are able to pass on costs to consumers and tend to perform better during times of high inflation. Please seek guidance from a financial advisor before making any investment decisions.

The next section shows that investors can consider alternative asset classes such as real estate and commodities during times of high inflation. If the prices rise, real estate and commodities will likely rise too.

3. Real estate

Real estate companies are listed on the stock exchange if you are looking for an alternative to buying a physical property. A sound option to invest in would be a property company listed as a real estate investment trust (Reit). You also have the option to diversify into physical real estate. Real estate accounts for more just than rental homes or apartments, consider offices or retail property, or think about investing in locations across the globe.

4. Commodities

You can look at commodities or invest in companies involved in the commodities industries.

As a refresher, commodities would include metal (gold, silver, platinum, copper), energy, livestock, and agriculture.

When looking at commodity shares, it is best practice to consider the financial health of the company in which you are investing. This is a rule for each purchase and each scenario, not just commodities.

An experienced investor is not caught off-guard by inflation.

Sound investors merely look at the landscape and ensure their investment strategy is set up to keep building wealth during times of inflation. This does not count as financial advice as many factors would need to be evaluated for each individual investor first. — Moneyweb