Beware of inflation and your investments

BY KEISHA BAILEY

Since the 2008 financial crisis, the global economy has been rebounding with inflation hovering around all-time lows in many parts of the world before the onset of the pandemic. It’s a situation consumers were getting accustomed to, and perhaps comfortable with. You literally could borrow money very cheaply and lots of people were using that money to buy assets, mainly real estate and stocks. This created huge price surges for these assets to the point where questions about “asset bubbles” were emerging.

Now the ‘honeymoon period appears to be over, induced by yet another crisis with no apparent end in sight. We may be coming out of the pandemic, but we need to be mindful of whether we may be headed into another.

Prices are again on the rise and just about everyone is starting to feel the economic pinch as wages aren’t increasing enough. Inflation, which once was thought to be a passing problem by governments and central banks, is now viewed as a persistent and an increasing threat to what our money can do each month. In essence, income is shrinking while living expenses are rising – could this be a recipe for disaster?

At the heart of the problem is the increasing cost for shipping because of the continued lockdowns in China. In short, companies and merchants are paying significantly more to move the goods we consume. Also the Russia/Ukraine war continues to cause oil prices to go even higher. Have you seen gas prices lately? Commodities such as wheat and grains also have higher prices, which filters into higher grocery bills for all of us.

But amid the crisis there are beneficial opportunities. For example, certain investment areas like real estate, stocks, bonds and commodities may be wise financial moves now. Inflation will likely increase the resale value of a property. It could also benefit the investor by way of rent income, which will also increase as inflation soars.

With regards to stocks and bonds it may not be easy to see how investors can benefit since inflation is not good for fixed-income instruments and stocks generally keep pace with inflation. However, strategic moves like purchasing inflation-indexed bonds can help. In these instances, interest payments rise because the interest paid is based on the base value. Similarly, investors should focus on buying stocks in companies where the rising cost of the product can be easily passed on to consumers. In the same vein, tangible assets are a good bet during inflationary periods. For example, investing in agricultural produce or oil will likely deliver significant dividends.

As inflation forces consumers to revisit how they can get the most value for their buck, banks are also looking to cash in. Notably, banks are uniquely positioned to benefit from an environment where inflation is on the rise. That’s because inflation is usually followed by an interest rate increase. In the interim, consumers around the world continue to buckle under inflationary pressures after decades of relatively low consumer prices.

I really hope that with my views and the information shared that you are able to make some shifts in your investing. I want you to be a successful investor and knowledge is critical to do so. I would love to keep connected so reach out to me on IG or Facebook @profitjumpstarter or I am one click away at keisha@profitjumpstarter.com.