Get ahead of the game during inflation – and stay ahead – with this no-nonsense investment guide.
At its most basic, inflation is the increase in prices over time, the rate of which is expressed as a percentage.
Let’s take a very simple example:
Imagine you have a basket of goods in January and it costs €100.
In August of the same year, you buy exactly the same basket of goods in the same shop, but this time it costs €105.
The rate of consumer inflation – or price change over time – for this basket of goods is running at 5% over this time period.
If the same goods in the same shop in November cost €107, we would say that the consumer inflation rate is running at 7% for the period January–November.
And so on.
Some economists would put this a different way and say that inflation is when money loses value over time.
To help avoid your money losing value over time, you can consider investments and savings products with higher returns than the inflation rate. Nash is one app that can open up such opportunities. Check it out here.
Economists measure whether the cost of living is going up or down by analysing the change in price of a number of goods and services.
Many economists refer to two main measures of inflation:
1) The Consumer Price Index (CPI), which focuses on goods and services;
2) The Retail Price Index (RPI), which does the same but also includes housing costs, like mortgage interest, rent and council tax.
RPI is usually higher than CPI.
It’ll be no surprise to hear that the assets that do well during inflation are the ones that go up in value as inflation goes up.
Examples of this are: rental properties, commodities, bonds, stocks and leveraged loans. But cryptocurrencies and related assets have recently also proven attractive alternatives to traditional investments.
Let’s take a look at each of these in a bit more detail.
Other commodities include raw materials and agricultural products like oil, copper, cotton and food sources. These tend to rise in price as the finished products that they help produce rise.
Another indirect way into the commodities market is to buy the shares of its producers directly or indirectly through an ETF or specialised mutual fund.
Nash allows you to buy thousands of different crypto assets directly with national currency and to exchange them for thousands of other coins at the touch of a button.
It really depends on how much risk you are prepared to take to preserve your portfolio’s worth and keep it growing.
Investing in stocks and TIPS can certainly help diversify your holdings, but you don’t want to invest too heavily in just one category. Consider other categories such as cryptocurrency and commodities.
The idea is to spread the risk across a number of holdings. Then, if something tumbles badly, you still have other options.
Good luck with your investment journey during inflation!
DISCLAIMER: This article is for informational purposes only and does not offer professional financial advice. For a full appreciation of investment strategies and risks in your particular situation, please consult a professional.